The Life Insurance Enterprise, 1885–1910: A Study in the Limits of Corporate Power [Reprint 2014 ed.] 9780674181939, 9780674181915

Citation preview

THE

LIFE

INSURANCE

ENTERPRISE,

A

PUBLICATION

FOR IN

THE

STUDY

AMERICA

·

OF OF

1885-1910

THE THE

HARVARD

CENTER HISTORY

OF

UNIVERSITY

LIBERTY

T H E LIFE INSURANCE ENTERPRISE, 1 8 8 ^ - 1 9 1 0 A STUDY

IN T H E

OF C O R P O R A T E

LIMITS POWER

by Morton Keller

THE

BELKNAP

HARVARD

PRESS

UNIVERSITY

OF PRESS

CAMBRIDGE, MASSACHUSETTS · 1 9 6 3

©

COPYRIGHT AND

1963

FELLOWS

BY

LIBRARY

OXFORD OF

ALL

RIGHTS IN

UNIVERSITY

CONGRESS

PRESIDENT

HARVARD

DISTRIBUTED BY

THE

OF

CATALOG

COLLEGE RESERVED

GREAT

BRITAIN

PRESS,

LONDON

CARD

NUMBER

63-10868 PRINTED

IN

THE

UNITED

STATES

OF

AMERICA

TO

PHYLLIS

FOREWORD Voluntarism was one of the weighty forces that preserved liberty in the United States. The fact that not every desirable social end had to be pursued through the use of the coercive instruments of government gave Americans a choice of means of cooperative action. They could sometimes work through the polity; but they could also use other means of association when they deemed it desirable to do so. The forces that kept the capacity to choose alive since the colonial period are among the essential elements in the preservation of freedom in the United States. The business corporation was among the most important of these alternatives to the state. Originally an agency of the government, it slowly achieved independence of political control and established its private character. By the end of the nineteenth century it was an autonomous institution governed by its own stockholders and their elected officers and subject only to general regulation by law. The nineteenth century expansion of the American economy gave many such corporations enormous power. The necessity of confining that power to socially acceptable uses while still leaving the corporation free within the areas of its own competence became one of the continuing issues of American policy. The accumulation of power in institutions that were defined as private was tolerable only when qualified by the assurance that they would not serve as a means of establishing the dominance of those who controlled them. The history of the great life insurance enterprises that took form during the last quarter of the nineteenth century dramatically exemplified these tendencies. These corporations performed a vital function in the

Vili

*

FOREWORD

life of an urban, industrial society. They grew rapidly in strength and amassed enormous resources, for the nature of their business made them custodians of the savings of millions of people. The very magnitude of their strength raised serious questions about the place in a free society of private institutions that served a public purpose. Significantly Professor Keller's study shows the importance of selflimiting factors in the structure of American corporations that prevented their growth from becoming socially dangerous. Even before any state intervention, the great life insurance companies were themselves adjusting to the obligations of the kind of society in which they operated. They were therefore able to survive government investigation and, purged of abuses, continued to grow as private enterprises. This experience forms an instructive contrast to that in many contemporary European countries where the inability to achieve the same ends by voluntary means created a vacuum into which the government moved. Oscar Handlin

PREFACE

Few artifacts of this corporate age are more impressive than the buildings of the large life insurance companies. Their local offices stand in a thousand communities. Regional headquarters share the skylines of a dozen American cities; Hartford, Boston, and Philadelphia house major firms. And in and about New York stand the home offices of the longestablished giants: the Metropolitan at Madison Square; the New York Life just to the north; the Mutual and the Equitable in new midtown monoliths; the Prudential in Newark. These are corporations at the highest level of the nation's business structure. If size counts, and money talks, they should be among the most potent institutions of this society. Yet the large life insurance companies play a curiously limited role in American life. They control increasing amounts of corporate stock, but they do not systematically and purposefully use their voting strength. Their officers do not figure largely in the interplay of business and politics. In many ways, they are giants without power. This was not always so. Around 1900 the great life firms were among the lustiest of American corporations. No business had more, or more highly visible, elements of power. The large insurance companies freely used their substantial assets to control their investment and regulatory milieus; they had uniquely sophisticated corporate, managerial, and marketing structures; theirs was an executive leadership unusually dedicated to the quest for power and place. The nature of this quest, and the complex of forces that transformed the enterprise of life insurance, is one concern of this book. Another is

χ

*

PREFACE

with the life insurance business as a social institution. The nature of the enterprise permitted a rich and diverse rendering of the possibilities of corporatism as a form of social organization to a degree matched, perhaps, by no other business group. Indeed, there seems to have been a positive relationship between the baroque vigor with which this society of companies made its way and the extent to which it was finally contained. This work places greater emphasis on the limits of American corporate power than on its possibilities, and suggests (as an adjunct to John K. Galbraith's concept of countervailing power) that there are internal as well as external checks to the force of the corporate institution. But it does not intend to imply that only inconsequential problems stem from the rise of large organizations in American life. The real perils of bigness in America—flaccidity, mediocrity, inertia, and sterility—continue to demand the society's full attention and concern. I have many favors to acknowledge and obligations to record. Grants from the Social Science Research Council, the John Simon Guggenheim Memorial Foundation, and the Center for the Study of the History of Liberty in America smoothed the way for my research and writing. The officers and staffs of the Equitable, John Hancock, Metropolitan, Mutual, New York Life, and Prudential insurance companies were immensely helpful; I want to thank these firms, too, for permission to quote from their records. My thanks go also to Alice B. Beer, Charles B. Bradley, R. Carlyle Buley, Arthur Hunter, Alvin Levin, Richard V. Lindabury, and William N. Parker. Thomas C. Cochran has been a constant source of encouragement. I owe a special debt of gratitude to the kindness and wisdom of Oscar Handlin and have drawn heavily on my wife's good judgment and editorial skill. I also want to thank Robin and Jonathan, who endured. Morton Keller Moylan, Pennsylvania

CONTENTS

PART

ONE:

A

SOCIETY

OF

COMPANIES

I. The Life Insurance Enterprise II. A Society of Companies III. An Ideology of Power

PART

TWO:

THE

BUSINESS

OF

3 12 26

LIFE

INSURANCE

IV. Growth and the Corporate Structure V. Growth and the Business Technique

PART

THREE:

THE

VENTURE

OVERSEAS

VI. The Dynamics of Foreign Expansion VII. The Challenges of Nationalism

PART

FOUR:

THE

INVESTING

37 52

81 95

POWER

VIII. The Investment Environment IX. The Structure of Investment X. The Investment Performance

127 139 157

χ ii

PART

*

CONTENTS

FIVE:

THE

COMPANIES

AND

THE

COMMONWEALTH

PART

Six:

XI. XII. XIII. XIV.

An Experience at Law The Structure of Supervision The Response to Regulation The Companies and National Power

THE

LIMITS

OF

187 194 214 227

POWER

XV. 1905 XVI. Disengagement XVII. The End of Power

Abbreviations Bibliographical Note Notes Index

245 265 285

294 295 299 332

ILLUSTRATIONS

Unless otherwise noted, photographs and drawings are by courtesy of the respective companies. following page Henry B. Hyde. Frederick S. Winston. William H. Beers. John F. Dryden. Joseph F. Knapp. 114

F O U N D E R S AND P R O P H E T S .

Richard McCurdy. John McCall. John R. Hegeman. James W. Alexander.

T H E L O R D S OF T H E E A R T H .

RIGHT-HAND

MEN.

114

Haley Fiske. Gage E. Tarbell. George

W. Perkins.

146

T E N T S O F T H E M I G H T Y . The Prudential building. The Metropolitan building. The Equitable's headquarters. The home of the New York Life. The Mutual building.

146

S O N S O F T H E F A T H E R S . Robert McCurdy. Hazen Hyde. Forrest F. Dryden. John C. McCall.

146

THE

THE

James

C R I S I S O F 1 9 0 5 . Thomas Fortune Ryan. Charles Evans Hughes (photograph by Pach Brothers). The Armstrong Investigation (photograph from Harper's Weekly, December 1905).

178

F A C E O F R E F O R M . Paul Morton. Alexander E. Orr. Charles A. Peabody, Jr. Richard Lindabury.

178

THE

THE

TABLES 1. The growth of the Big Three, 1899-1904 2. Undistributed deferred dividend surpluses of the Big Three, 1880-1904 3. The foreign business of the Big Three (excluding Canada), 1890-1905 4. The Big Three's foreign bond and stock holdings, 1890-1905 5. Assets of twenty-nine life insurance companies, 1860-1900 6. The Big Five's investments, 1890-1905 7. Comparative investment earnings of selected companies, 18951904 8. State legislation in selected areas of enterprise, 1890-1905 9. State corporate taxation, 1890 and 1895 10. Insurance in force and new business of the Big Five, 1904-1910 11. Life insurance in force in the United States, 1900-1960

53 63 83 89 129 158 163 196 198 275 286

Grown to tremendous proportions, there may be said to have evolved a "corporate system" — as there was once a feudal system — which has attracted to itself a combination of attributes and powers, and has attained a degree of prominence entitling it to be dealt with as a major social institution. Adolph A. Berle and G . C. Means,

The Modern Corporation and Private Property

Part One

*

A Society of Companies

Insurance is one of the most venerable of business enterprises. Its development touched on major themes of eighteenth and nineteenth century economic change: the rise of the business corporation, the ebb and flow of government regulation, the entrepreneurial response to industrialization and urbanization. In the United States, the life insurance business came to be dominated at the end of the nineteenth century by a small group of great firms: the New York Life, Equitable Life, Mutual Life, and Metropolitan Life insurance companies of New York, and the Prudential Insurance Company in Newark. The managers of these companies assumed more than strictly entrepreneurial roles. They defined themselves not only as sellers of insurance but as men of standing and power in the community; and they claimed for their corporations equally prestigious, quasi-public functions. In consequence, this self-contained society of companies took on an unusual ideology of corporate purpose and power.

I % The Life Insurance Enterprise

When man's economic activities moved beyond the demands of simple subsistence, insurance came into being. After capital broke away from its immemorial stagnation on the land, and assets became fluid and hazardously placed, the desire developed for some protection against sudden disaster. Systematic guarantee against loss — of produce, of ships, of slaves — crops up in ancient Greece, classical Rome, medieval Europe. As natural as the movement of goods by ship was the insurance of their safe arrival; when fire threatened the buildings and products of urban commerce coverage by organized underwriting developed. Life insurance was the last and most sophisticated of insurance forms. It began with underwriting on the Uves of slaves, the most literal possible translation to humans of the principle of property protection. Coverage in the modern sense came only after the Renaissance made viable a strong sense of the intrinsic importance of human life. The first known life insurance policy appeared in Elizabethan England, where the glory of man, prospects of material gain, and the identification of property and person were well advanced.1 The general appeal of life insurance made it a lucrative enterprise and an apt tool for the fund-raising purposes of burgeoning national states. The France of Louis XIV first plumbed its possibilities for public finance. The government, financially straitened by war and extravagance, adopted the scheme of Italian physician-banker Lorenzo Tonti for a state loan with both gambling and insurance features. Subscribers made payments, parts of which were set aside yearly for annuities; and those participants who lived longest within their age group benefited

4

*

THE LIFE INSURANCE

ENTERPRISE

most. The scheme's success in 1689 and 1695 led to its imitation elsewhere in Europe, generally by private parties, but with results always disastrous for the participants. As private speculation on a mass scale became a fixed feature of European life, insurance schemes gained in prominence. Wager policies, where one could insure the life of another without the insured's knowledge, spread rapidly through the sixteenth and seventeenth centuries. The murders that too often resulted from this form of enterprise led to its abolition in Genoa, Spain, and Germany. But in the world of John Law and the Mississippi Bubble, societies offering wager or speculative assessment annuities flourished mightily. It was possible in England to take out insurance on the lives of statesmen and noblemen, and on a multitude of other things besides: against the occurrence of divorce; against loss of virginity; even, in one case, against an individual's failure to return from Lapland with two reindeer and two female natives.2 But such extravagances eventually were judged improper. The London Chronicle protested in 1768: "when policies come to be opened on two of the first peers in Britain losing [their] heads . . . or on the dissolution of . . . parliament within one year . . . and underwritten chiefly by Scotsmen . . . it is surely high time to interfere." In 1711 a statute prohibited insurance on marriages, births, and christenings. Finally in 1774 an antigambling act required that the policyholder have an insurable interest in the project or person underwritten. 3 As wager ventures collapsed under the weight of their impropriety, the tools of a more rational system of life insurance came to hand. The mathematics of Blaise Pascal, Edmund Halley, and others led to the first life expectancy tables; they would be improved through the eighteenth century. Lloyd's of London combined a reasonably respectable maritime insurance business with more speculative ventures. By the end of the eighteenth century it had a fixed policy form which suggested the possibilities of contractual regularity in life insurance as well. And in 1762 The Society for Equitable· Assurances on Lives and Survivorships — London's "Old Equitable" — appeared as the first modern life insurance firm, mutual rather than joint-stock in organization, selling longterm life insurance on a plan of level, annual premiums. 4 The Equitable stood in an almost unbroken line of unincorporated eighteenth century insurance ventures. After the Bubble Act of 1720 Parliament rarely granted charters of incorporation to any enterprise. But this did not prevent a vast accumulation of entrepreneurial experi-

THE LIFE INSURANCE

ENTERPRISE

*

5

enee and technique; and in that development insurance firms played a conspicuous role. Fire companies desiring to expand into the life insurance field worked out an early form of holding company organization. Insurance ventures, more than most, wrestled with the problem of limited liability, for although the creditor-policyholder posed a special danger, there was a salient need to appeal to him as a customer with the promise of guaranteed recovery. The opposition to the Equitable on the part of the Royal Exchange, the London Assurance Corporation, and the Amicable Society was a prime example of the struggle between established, chartered companies and new, unincorporated firms. A 1782 statute licensing unincorporated insurance companies was one of the major legislative victories of burgeoning new enterprise in late eighteenth century England. By the end of the century the safeguards and opportunities inherent in incorporation strongly attracted entrepreneurs. Insurance firms were prominent in the fight to gain access to this form of business organization. A legal action involving an insurance company was the occasion for an early judicial characterization of the corporation as a device appropriate to private enterprise. Fire and marine insurance was included — with banks, canals, and water works — in Adam Smith's select tally of enterprises suitable for incorporation because of their social utility and capital needs. Nineteenth century English insurance charters pioneered in the development of the concept of shareholders' limited liability, although Parliament would not allow this privilege to insurance firms chartered under an act of general incorporation until 1862. Through the late eighteenth and early nineteenth centuries mutual friendly societies were formed in England by "almost every distinct religious sect, by every interest where the members of it congregated in particular haunts, every class of professional and commercial life." A 1793 act recognizing the societies' legality marked the first official divergence from the anticorporation policy set in the Bubble Act almost seventy-five years before. On the ground that their "dealings are admitted to be of general utility, and need more money than partnership can supply," these firms fought a long and ultimately successful battle for the right of free incorporation. The nineteenth century efflorescence of laissez-faire seemed to divest chartered enterprise of its fundamental identification with the public interest. But the belief persisted — if anything, grew — that the business of insurance had special responsibilities. An English Parliamentary

6

*

THE LIFE INSURANCE

ENTERPRISE

committee decided in 1853 that the public function of insurance transcended the generally accepted "principle of [governmental] non-interference" in matters of trade. Income tax remittances were granted to life insurance policyholders on the ground that they reduced pauperism and crime.5 The relatively late application of limited liability to insurance incorporation also suggested the special public concern with the business. 2 Insurance ventures played a prototypal role in early American business history as well. The first American life insurance company, the Presbyterian Ministers' Fund of Philadelphia, got its start in 1759. The Philadelphia Contributionship for Insuring Houses from Loss by Fire, dating from 1768, was the only chartered private business corporation in colonial America. Numerous fire and marine firms, including the Insurance Company of North America, emerged after the Revolution as part of the new country's expanding commercial structure.® Insurance companies joined with banks to play a leading role in gathering and applying the capital necessary for the rapid development of the American economy in the early nineteenth century. Bank charters often bore the title of a combined insurance and trust company, for insurance incorporation was among the most familiar and most flexible of chartering forms. Prominent in the often chaotic banking history of pre-Civil War America were the New York Insurance and Trust Company, which had a particularly active life insurance department during the 1830's; the Massachusetts Hospital Life Insurance Company; and the Ohio Life and Trust, whose failure ignited the panic of 1857. As incorporation spread, the banking-insurance company served as a model for canal, railroad, and manufacturing charters.7 Yet in the midst of this unshackling of corporate enterprise, the special nature and perhaps the very venerability of the insurance business induced continuing, even increasing, checks upon it. State regulations were early and numerous. Pre-Civil War litigation involving insurance or insurance and trust companies often led to decisions that increased the power of the states over foreign (out-of-state) corporations.8 American life insurance at first continued to operate in the tradition of the Presbyterian Ministers' Fund: as the province of special, limited groups. But during the 1840's it emerged as a full-fledged enterprise. Only twenty-nine life companies were formed up to 1840; in the next decade thirty-seven new firms appeared. Of this group twelve survived

THE LIFE INSURANCE

ENTERPRISE

*

7

into the twentieth century, including such bulwarks of the industry as the New York Life, the Mutual of New York, the Mutual Benefit of New Jersey, the New England Mutual, the Connecticut Mutual, and the Penn Mutual. The country's growing economic independence and maturity made this expansion possible. The new companies began in a prosperous decade by appealing to commercial and professional men in the booming Eastern cities of New York, Philadelphia, Boston, and Hartford. 9 As dramatic as the number of new and successful companies was their dependence on the mutual form of corporate organization. Up to 1841 three mutual life insurance companies had been established in America; in the subsequent decade at least eighteen more appeared. Several factors accounted for the dramatic change, which extended to all forms of underwriting. For fire and marine companies, the decisive factor was a disastrous fire in 1835, which turned new commercial insurance ventures to mutualization as a means of obtaining capital without exposing a small group of stockholders to heavy, concentrated loss. Life company organization was most affected by the panic of 1837 and the ensuing depression, which dampened the stock-buying enthusiasms of investors. Yet the demand for life insurance in the prosperous cities of the 1840's was patent enough, and entrepreneurs were anxious to tap the market. Mutualization was the ideal solution: it enabled companies to begin with relatively small initial capital guarantees, and had the marketing advantage of luring commercial-minded policyholders with the prospect of sharing the dividend rewards of ownership. The success of mutualization created a vested interest of established companies which would not encourage the indefinite multiplication of their breed. In 1849 a New York law required insurance firms to place a $100,000 security deposit with the state, thus raising the initial capital needs of a new company to a level mutualization could not reach. But though the life insurance firms of the 1840's choked off the form of capitalization that had created them, they could no more exclude new entrants into their enterprise than could canal, bridge, or railroad companies. Their success gave them power; but it also gave the business an aura of promise which attracted other entrepreneurs. The organization of the Equitable Life Assurance Society in 1859 as a stock company marked the opening of a new period of insurance expansion. The Civil War gave notable stimulus to the insurance business; it focused attention on the transience of life in the most dramatic possi-

8

*

THE

LIFE

INSURANCE

ENTERPRISE

ble way. After the war, capital sought fresh investment outlets, among them the life insurance enterprise. Between 1865 and 1870, 107 new companies appeared, almost all stock in form. Most spectacular was the National Life Insurance Company of the United States, organized by the Civil War's leading financier, Jay Cooke, with a congressional charter. In New York alone, companies increased from 14 in 1860 to 69 in 1870; policies from 50,000 to 650,000; insurance in force from $140,000,000 to $1,800,000,000; assets from $20,000,000 to $229,000000. The amount of life insurance issued in 1868 was larger than the national debt; and the New York insurance commissioner did not exaggerate when in 1870 he noted that "life insurance has become one of the great business interests of the country." 10 Such vigorous expansion evoked attempts to impose order on the industry. American Life Conventions were sponsored by the Mutual of New York in 1859 and 1860, and a movement for Federal regulation occurred in the late 1860's. Actuaries such as Sheppard Homans and particularly Elizur Wright played a role as stabilizing influences. Mathematician and actuary, Massachusetts insurance commissioner, and doughty fighter for meaningful regulation and equitable nonforfeiture and valuation laws, Wright more than any other man brought restraint and regulation to a chaotic business. 11 But though the state of the business called for order, the spirit of the time did not. The New York insurance commissioner, however committed to the interests of the established companies, could not bring himself to support restrictions on the formation of new ones. Multiplication and cutthroat competition remained the unwanted but unavoidable characteristics of the life insurance business. Elizur Wright impatiently looked for popular pressure to check the boom, but Charles Dana of the New York Sun astutely concluded: "Sometime, probably after a general crash in life insurance, we can get the public to take an interest . . . It does not do it now." 12 Then came the panic and depression of the mid-1870's, with an inevitable flood of failures (seventy-five between 1871 and 1877) and heavy declines in insurance in force. Investigations (New York, 1870, 1872, 1873, 1877; Ohio, 1885) denoted the public pressure for reform. The survivors, primarily well-established companies going back to prewar times, had an important stake in a more settled order. During the 1880's, in clear reaction to the anarchy of the preceding decade, came the first signs of meaningful cooperation. Twelve beneficiary so-

THE

LIFE

INSURANCE

ENTERPRISE

*

9

cieties formed a National Fraternal Congress in 1886. In 1889 the Actuarial Society of America and the Association of Life Insurance Medical Directors conferred the aura of professionalization on important elements of the business; in the following year the organization of the National Association of Life Underwriters did the same for agents. By the end of the century life insurance had attained the capsheaf of respectability with lectures on the subject at Harvard and Wisconsin. 13 3 The life insurance business took on new forms and qualities suitable to the age. A complex industrialized economy meant rapid urbanization and growing numbers of commercial and professional people. Both developments strengthened the appeal of life insurance in the late nineteenth century. The rise of the cities created an ever growing mass of people detached from the relationships and environment that once had provided security. Previously, on the farm or in the small town, the clan-family or one's neighbors provided social stability and economic safety; property was landed, permanent, protected. In the shifting, expansive, uncertain life of the city, where assets were more fluid and more in jeopardy, the immediate family unit had to seek out its own security. In a world of changing residences, jobs, and friends, life insurance could be a tangible expression of family continuity, responsibility, and security. 14 Increasingly, certain urban groups were ready to pay for relatively expensive insurance, not only to protect the gains they had made in an unstable society but also, if possible, to add the fillip of speculation to the provision of security. Deferred dividend policies, which combined insurance protection with the possibilities of investment profit, grew greatly in popularity among urban professionals, businessmen, and the more prosperous white-collar workers during the late 1800's. Direct agent selling, accompanied by a growing paraphernalia of advertising, swelled the volume of insurance bought. The result was a striking growth rate. The assets of life insurance companies rose by 12,000 percent during the second half of the nineteenth century. Per capita holdings went from $40.69 in 1885 to $179.14 in 1910. By 1890 more life insurance was held in the United States than in the entire British Empire; soon American holdings easily surpassed the rest of the world's total. 15 New forms of underwriting arose to meet changes in the nation's economic and social structure. A growing number of people came to handle

10

*

THE LIFE INSURANCE

ENTERPRISE

large sums of money in the complex financial transactions of a mature capitalistic society. During the 1880's surety companies bonding such employees against loss or defalcation came into existence. In 1894 Congress allowed these firms to bond Federal employees; thereafter the expansion of the surety insurance business was rapid. 16 The most spectacular of the new types of insurance touched upon the millions unable to afford the relatively high price of regular life insurance. The same industrialization and urbanization that created business, professional, and white-collar markets also gathered masses of industrial working families ready to pay, if not for survivors' well-being, at least for the decencies of burial. Especially responsive were the immigrants, who particularly needed the perquisites — social- and self-respect — that insurance could offer. Special insights and techniques, not common in the American corporate lexicon, were necessary to reach this market. The first successful entrepreneurial response came from the people themselves, in the form of fraternal societies. Usually assessment-plan organizations, the societies had a manifold appeal. They offered the attractions of lodge and clubhouse, of ritual and organization, of familiar faces and customs; and they shut out the hostile new environment. At the same time the fraternal societies offered burial insurance (and occasionally more extensive coverage) which gave them formal, if not real, reason for being. All peoples on the move — Negroes and whites going from rural to urban America, immigrants swelling the industrial and agricultural ranks — cushioned the social and, less successfully, the economic shock of their displacement with these fraternal associations. The great age of the fraternals began in the 1870's, and they grew with the ensuing decades of industrialization and immigration until by 1895 their insurance in force surpassed that of the regular life companies. Although their assessment method of payment was fiscally inferior to the fixed premium plan of most regular companies, it was highly appropriate to the cooperative spirit which gave them meaning. Fraternal insurance vied with regular life insurance in volume at the turn of the century, but its very nature prevented individual societies from attaining considerable size: their essence was exclusivity.17 The application of large-scale business methods to the mass insurance market of the poor was not long neglected. Companies selling small, fixed-premium, weekly payment policies to working people serviced the industrial population of mid-nineteenth century England. The Pru-

THE LIFE INSURANCE

ENTERPRISE

*

11

dential Assurance Company of London, organized in 1854, played the same pioneering role for industrial insurance that the "Old Equitable" of the eighteenth century performed for ordinary life. The English Prudential's success stimulated American emulation. In the same decade in which fraternal societies emerged in force, the 1870's, United States industrial insurance was launched. The requisite heavy urban concentrations of industrial workers had appeared during the Civil War period; the hard times following the 1873 panic created among men of substance a consciousness of the plight of the urban poor and of the moneymaking possibilities in selling burial insurance on a mass scale. The industrial insurance business prospered despite the fact that its prime markets lay among the same groups which the fraternals served. As substantial corporations with fixed premiums, the industrial firms had an air of stability and business efficiency denied fraternals which too often were at the mercy of dishonest secretaries and an unworkable assessment plan. A fundamental difference in appeal also separated fraternals from industrials. The former offered, in essence, protection from the surrounding milieu; the latter, adjustment to it. To go from the familiar if uncertain protection of the fraternal society to the Americanized, routinized product of the industrial company must have marked, for immigrants and natives alike, a step forward in their adaptation to an urban, industrial society.18 So the business of life insurance, long a significant form of corporate enterprise, found in late nineteenth century America substantial fulfillment of its entrepreneurial possibilities. The Massachusetts insurance commissioner commented in 1897 with some awe on the "extraordinary extent [to which] life insurance has come to enter into the business affairs, fortunes and homes of the people. It is no longer considered as a speculation or a luxury, but as an absolute essential to the modern forms and habits of living and business." 19 Out of this juncture of a society and an enterprise emerged a group of great life and industrial insurance companies, which by the end of the century held a towering place among American corporations. These firms were the cumulative product of an entrepreneurial and corporative experience stretching back three hundred years to William Gibbons' first halting attempt to protect the most fundamental of all equities — his life.

II ^

A Society of Companies

Henry Hyde showed good judgment in 1859 when he called his new firm the Equitable Life Assurance Society. For by 1900 the largest life insurance corporations were complex and consequential enough to be considered major social institutions. In their structure, functions, and interrelations, they took on the attributes of a society of companies. 1 Other well-established enterprises — railroads, steel, oil — were moving steadily toward concentration and consolidation. In so doing, they created the pools, trusts, and monopolies that by 1900 were a central fact of the nation's economic structure, and a major concern of its people. To some extent the same development occurred in life insurance. Under the impact of hard times, the number of companies shrank from 129 in 1870 to 55 in 1882. The Metropolitan Life occasionally absorbed insolvent firms. By the turn of the century smaller companies were raising the complaint, also familiar in other businesses, that the capital necessary to compete effectively with the giants impeded the start of new or the continuation of existing competition. But monopolistic consolidation was not the keynote of the life insurance industry. From the 1882 trough of 55, the number of companies rose to 126 in 1905. No equivalent of Standard Oil or United States Steel came to dominate the business. Rather, a group of roughly equal corporate giants, and an expanding group at that, dominated the field by 1900. The largest established firms — the Mutual Life Insurance

A SOCIETY

OF C O M P A N I E S

*

13

Company, the Equitable Life Assurance Society, the New York Life Insurance Company — grew steadily and impressively. In addition, two relatively new corporations, the Prudential Insurance Company and the Metropolitan Life Insurance Company, rose to eminence in industrial insurance and began to figure prominently in regular life insurance as well. From the vantage point of 1900, then, the business was as much the province of large corporations as any American enterprise, but it did not seem to be heading toward concentration and monopoly. Instead, the great firms dominating the industry resembled what a later generation would call a corporate oligopoly — modified by the coexistence of a number of smaller but still substantial companies. The central factor in the life insurance business of the latter part of the nineteenth century was headlong, unchecked growth. At the core of this expansion were the "Big Three" of the industry, the Mutual, the Equitable, and the New York Life. All were New York corporations organized before the Civil War; each struggled with the others for supremacy. The Mutual was America's largest life insurance company from 1855 until the Equitable supplanted it in 1886; the New York Life shouldered aside the Connecticut Mutual Life Insurance Company and the Mutual Benefit Life of Newark to stand third in size in 1885, and surpassed the Equitable in 1899. In their ceaseless striving for primacy, the three "racers" increasingly dominated their field. By 1890 they did 86 percent of the business handled by New York life insurance companies; and in that year they boasted a collective insurance in force of $2,000,000,000, greater than the next twenty-two American companies combined. Insurance opinion around 1890 often concerned itself with the great companies' size and prospects; for some, corporations of such magnitude already were overextended. But one journal accurately caught the firms' animus when it declared: "Whatever has the element of evolution in it lives. Only so far as the principle of insurance is capable of development is it entitled to continued existence." 1 The depression of the 1890's did not seriously impede this purpose. Unlike the 1870's, the new period of economic hardship affected only the rate of growth — not the factor of growth itself — of the large companies. The Mutual's president gratefully, if perplexedly, remarked: "How people should have money . . . to spend in life insurance policies under the prevailing conditions is more than I can explain." In 1899 each of the Big Three passed the billion-dollar mark in insurance in

14

*

THE LIFE INSURANCE

ENTERPRISE

force; in 1905 their combined premium income was over $200,000,000. Their growth rate accelerated dramatically: the New York Life's first billion dollars' worth of insurance policies came after fifty-four years; its second came in six.2 As the companies blossomed — their assets in 1904 totaled a billion dollars, with two million people holding policies — grandiose comparisons proclaimed the achievement. It was noted that their funds were greater than the amount of currency in circulation within the United States; that their 1904 assets equaled the national wealth of Greece or Norway, or one-tenth the value of the United States' railroad system, or twice the bullion of Great Britain; that their 1906 surplus could pay the interest on the national debt. It was thought to be "the greatest wealth ever concentrated in the control of a few persons for beneficent reasons." The New York Life's John McCall, pressed in 1905 to put a reasonable ceiling on the companies' growth, spoke casually of the "limit of . . . human capacity." 3 Although the magnitude of the three regular life companies made the heaviest claim on the popular imagination at the turn of the century, industrial companies more than matched the others in the rapidity of their growth. In insurance in force, the Metropolitan stood fifth and the Prudential eighth in 1890; by 1900 they were fourth and fifth; in 1905 the Metropolitan was second to the New York Life. The John Hancock of Boston, far smaller than the two giants, nevertheless figured with the Prudential and the Metropolitan in political matters and questions of industry policy. By 1909, two out of every nine people in the United States were covered by industrial policies, and the three leading companies had 95 percent of the business. They had 3,750,000 policyholders in 1890; 15,750,000 in 1905. In their growth they burst the bonds of localism and specialization. Quickly the Prudential and the Metropolitan developed a national business and, by the turn of the century, had rapidly growing straight life departments which appealed with great success to a lower middle class market untouched by the Big Three. More than size drew the five largest insurance companies into a corporate society of special intimacy and commonality of interest. Geographical proximity played a part: with four of the firms in New York, and the Prudential nearby in Newark, they were bound by a thousand subtle but real ties of daily executive contact.4 Common markets and common interests — the complex interplay of competition and coopera-

A S O C I E T Y OF C O M P A N I E S

*

15

tion — created highly correlated business techniques. Proximity to the New York investment and money markets guaranteed closely interrelated investment experiences. Equivalent corporate ideologies and the spurs of competition sent the three straight life companies on extensive marketing adventures overseas. Shared regulatory problems made for joint political action. One measure of the cohesiveness of this society of companies was the degree to which the rest of the industry stood outside. Around the great pentad of the New York-Newark companies stood clusters of lesser, regionally oriented firms. The John Hancock of Boston shared New England insurance market dominance with Hartford's Aetna and Connecticut Mutual. In New Jersey the Mutual Benefit of Newark, fifth in size among American companies during the 1880's, still was a substantial firm by 1900, as was Philadelphia's Penn Mutual. The giant of the West was the Northwestern Mutual of Milwaukee, sixth in insurance in force at the turn of the century. Significant differences aside from size and geographical propinquity set these lesser firms apart from the leaders. Generally they were more committed to conservative, restrained ways of business. Company spokesmen such as Jacob L. Greene of the Connecticut Mutual and the Mutual Benefit's Amzi Dodd protested against the techniques and the tendencies of large-scale corporate expansion. In 1867 Dodd warned Elizur Wright: "Unless more sobriety be maintained in making promises or raising expectations it would seem that the whole business will be brought down to a level where plain and honest men will not wish to stand." And at the end of the century, when the great companies developed sophisticated and productive liaisons with the state and national political structures, Greene fretted over "the disposition of those concerned in various enterprises to turn to the state for aid." President John McCall of the New York Life contemptuously regarded him as "so ultra-conservative that I think he would oppose anything he did not originate." 5 Differences cropped up in the specifics of business, too. Greene and Dodd and their companies, as well as the New England Mutual, staunchly fought deferred dividend policies. The Northwestern Mutual stopped offering these speculative but profitable contracts in the early 1900's. While the Penn Mutual had a respectable third of a billion dollars' worth of insurance in force in 1905, its president earned a salary of $25,000, paltry by Big Five standards. Although the North-

16

*

THE LIFE INSURANCE

ENTERPRISE

western's selling methods yielded nothing in vigor to the larger companies, the firm nevertheless had no desire for business outside of the United States. And though the Aetna's Morgan Bulkeley was a United States Senator from Connecticut, he did not share the bold enthusiasm of Prudential president and fellow Senator John F. Dryden for Federal regulation of the life insurance business.6 2 For the corporate institution, as for any other, the most readily discernible continuum of historical development is the story of its leadership. A distinctive group of managers dominated the great life insurance companies during the latter half of the nineteenth century: Henry Hyde of the Equitable; Frederick S. Winston and Richard McCurdy of the Mutual; William H. Beers and John McCall of the New York Life; John F. Dryden of the Prudential; Joseph F. Knapp and John R. Hegeman of the Metropolitan. These men shared a hearty enthusiasm for growth at almost any cost, an enthusiasm fed in part by prospects of pecuniary reward and, in the reluctant words of a competitor, "more, perhaps, for the pride in doing it than otherwise." 7 Aggressive, selfconfident, filled with a desire for large and momentous achievement, they were the conflux of the forces that turned their enterprises into massive corporations; they were the necessary agents of the firms' maturation into a society of companies at the century's end. Henry B. Hyde was the prime mover and best embodiment of the post-Civil War life insurance business. Authoritarian and hard-driving, immensely able and energetic, full of self-esteem, in the habit of viewing his company as his own property, he belonged to that select group of late nineteenth century entrepreneurs which included Andrew Carnegie, James J. Hill, John D. Rockefeller. This most masterful of insurance entrepreneurs made his way in a business already well established. Hyde's father had been the most successful agent of the Mutual, America's largest pre-Civil War company. Henry Hyde himself was an employee of the Mutual when he chose to strike out on his own. Only twenty-five years old in 1859, he took rooms directly over his former employer (this was, he said, a natural "sentiment" for him), and from his window projected a thirty-foot sign — which dwarfed the advertisement below — proclaiming the existence of his new company, the Equitable Life Assurance Society.8 Hyde's special qualities brought him rapid success. By 1886 the

A SOCIETY OF C O M P A N I E S

*

17

Equitable had insurance in force surpassing its rival, the Mutual; it had become the world's largest life insurance company. Intensive, imaginative — and expensive — marketing and agency techniques, and, most important, the introduction of deferred dividend policies were the means by which Hyde wrought his achievement. With sure instinct, he satisfied the speculative-protectionist yearnings of multitudes of middle class Americans. Thus he identified the life insurance business with the most vital economic drives of the time. The Mutual reacted to the challenge like an uncertain but still powerful old giant. Frederick Winston, the company's president since 1853, was a cold, overbearing, often arrogant executive. His was the fundamentally undaring leadership of a man at the head of an established, dominant corporation. He never fully apprehended the tremendous appeal of life insurance to the business and professional classes of an urbanizing, industrializing America. Winston's first response to the Equitable's growing success was vigorous, often brutal opposition. A spectacular competition between the two companies flowered in the late 1860's and the early 1870's. Hyde pitted his salesmanship and deferred dividend policies against the older, richer Mutual's dividend power and established organization and reputation. Above the grim, persistent, unrecorded struggle between the companies' agents, paid insurance journalists engaged in boisterous verbal dogfights. One of these journalists, when not in jail for criminal libel, profited from the impartial sale of his favors to both companies.9 But Winston did not, in the last analysis, share Hyde's ruthless commitment to business volume. He once predicted, "In the future, the struggle will be between conservatism and audacity"; and his ultimate allegiance lay with the former value. In 1874 Hyde reported to Elizur Wright: "We have buried the hatchet with the Mutual Life, & trust there will be no more 'war,' & consequently no more expenses." While premature, the statement presaged a change in the Mutual's reaction to the rise of the Equitable: opposition gradually gave way to acquiescence. Winston was afraid that deferred dividend policy lapses made the issuing company unpopular, and after a halfhearted attempt at marketing them he abandoned the experiment. He turned instead to premium reductions as a competitive device. But this dangerous innovation shocked the rest of the insurance business, while it failed to pique the speculative interests of the policy-buying public, and it soon was dropped. Winston in effect conceded defeat when in 1873 he proposed that the Mutual

18

*

THE LIFE INSURANCE

ENTERPRISE

limit its size to 100,000 policyholders. Thereafter he and Hyde became friendly once again, and the Equitable moved more easily toward parity with its rival. 10 Winston's death in 1885 put at the head of the Mutual a man ready to renew the struggle for primacy. Richard McCurdy did not, perhaps, have Hyde's executive and selling abilities, but he easily matched the other in his commitment to the aggressive pursuit of business. Like Hyde he came naturally to the insurance business; his father had been the Mutual's leading director. But his upper class upbringing and a Harvard College and Law School education gave his business drives a more sophisticated tone. Publicity, notoriety — for his company, for himself — repelled him. He was readier to rationalize (often, it seemed, hypocritically) his business impulses. It was as though his social and educational advantages made it necessary for him to mask a ravenous entrepreneurial lust. He looked with some scorn on Hyde as a parvenu, and with heavy contempt rejected Winston's surrender to the Equitable. The Mutual's alternatives, as he saw them, were meekly to "subside into the position of the Connecticut Mutual, the Mutual Benefit, and New England Mutual — good second and third class companies — with only its age and its respectability to rest on, or . . . bravely take up the work which it practically laid down ten years ago." His choice was clear: "As population and wealth increase, so must the volume of our business." With revealing imagery he spoke of the company's reinvigoration: "Now . . . you see the fires burning brightly under boilers that are no longer cold, and the wheels not only beginning to move but actually gaining speed at every revolution, the great machine developing new energy with every stroke of the piston and the huge mass moving with increasing speed and power." 11 The New York Life did not figure at first in the consuming struggle between the Equitable and the Mutual for leadership. As late as 1890 the company's expenses were lower, its executive force smaller, than those of the other two firms. Morris Franklin, its president from 1848 until 1885, embodied far more than Winston a conservative business attitude that Hyde and McCurdy had rendered antiquarian. But Franklin's successor, William H. Beers, shared the others' zest for expansion and size. Suggestively he came to office in the same year as McCurdy. Not as forceful as Hyde and McCurdy, Beers nevertheless quickly swung his company into the swift-flowing stream of competition dominated by the others. 12

A SOCIETY

OF C O M P A N I E S

*

19

But a scandal in the early 1890's led to Beers's sudden departure from the New York Life. Its revelation suggested that the reckless quest for size was not without its penalties. The New York Life's cashier, Theodore Μ. Β anta, was an outspoken critic of Beers's administration; he disliked the president's emphasis on rapid growth. In late 1887 and 1888, Banta made a series of charges regarding the improper placement of company investments, fiscal irregularities, and an overlarge reserve. The charges, at first shunted by a directors' committee, took on added weight in 1891. The New York Times, possibly instigated by the other firms, exposed administrative troubles within the company, fixing especially on defalcations in its Spanish American department. Banta publicly supported these attacks. The New York Life responded by filing suit for libel against the Times and firing the cashier.13 Reactions to the scandal were numerous and swift. A policyholders' committee formed, and the New York insurance department launched a special examination of the company. Even a board of directors' committee admitted that "the business of the Company has outgrown the methods and checks now in use." Beers bowed under the pressure: he spoke of the strain on his health ("it is only a matter of time as to how much longer I can exist under it") and gave way in 1892 to a new president, John McCall. No great alteration in company policy seemed likely to come from McCall. He did cancel an overgenerous contract given ex-president Beers as a New York Life adviser, and ended the company's libel suit against the Times; but the directors who selected him noted his "willingness to do as little as possible to disturb present arrangements." McCall's presidency did, however, mark the introduction of a new element into life insurance management. Though sharing the devotion of Hyde and McCurdy to untrammeled expansion, he was committed also to new and more sophisticated concepts. The New York Life executive committee later characterized the company's troubles in the early 1890's as a deficiency "in that part of its organization which touched the public." McCall, active in New York Democratic politics, had been a state insurance commissioner and then comptroller and political liaison man for the Equitable. Clearly, the New York Life chose him for his public relations value and political skills as much as for his ability at life insurance marketing.14 At the time of McCall's appointment, the leading industrial insurance firms were just beginning to enter the select circle of great corporate

20

*

THE LIFE INSURANCE

ENTERPRISE

enterprises. They had already undergone a process of managerial development strikingly similar to that of the Big Three. The Prudential's first president, Allen L. Bassett, was forced out of office in 1879 primarily because of his inability to secure the increased capital needed by an expanding company. But even he had verbally committed the Prudential to participation "in the grand race for success across the Continent." In 1881 John F. Dry den, from the beginning the active managerial force in the Prudential, became president. His perception of the marketing possibilities of industrial insurance and his devotion to unlimited expansion put him in the same class with Hyde, McCurdy, and Beers; his polish and sense of politics, which took him eventually to the United States Senate, gave him much in common with McCall.15 The Metropolitan and the John Hancock, not very successful as straight life companies, established industrial departments in 1879. The impact of the depression of the 1870's convinced the Metropolitan's management that lesser companies stood little chance against the older, wealthier, larger ones. Thereupon it "turned its attention from this uneven competition . . . toward a distinctive form of business." Joseph F. Knapp, president of the company from 1871 to 1891, brought to this change in business purpose the drive and determination of the other pioneers in life insurance growth. He and Dryden engaged in a bitter competition during the 1880's which closely resembled the Hyde-Winston struggle a decade before. And Knapp's longtime assistant and successor, John R. Hegeman, had harmonizing and mediating abilities similar to those of McCall and Dryden. Appropriately his presidency began almost contemporaneously with that of the New York Life chief executive.16 The John Hancock in its smaller business environment shared the managerial experiences of the industrial giants. Stephen H. Rhodes came to its presidency from the Massachusetts insurance commissionership in 1879. He immediately established an industrial insurance branch, whose success took the company into undisputed third place in that field and to occasional confederation with the Metropolitan and Prudential. 17 3 The struggle for primacy raged unabated among the great life and industrial insurance companies at the turn of the century. If anything, the rise of the New York Life and the industrial companies' growing interest in the possibilities of the regular life insurance business should

A S O C I E T Y OF C O M P A N I E S

*

21

have intensified the competitive atmosphere. The Prudential created an ordinary insurance branch in 1886 which did 3 percent of the company's business in 1890 and 37 percent by 1905. The Metropolitan revived its regular policy business in 1892, the John Hancock in 1902. Nevertheless, during the 1890's values and aspirations quite at odds with those common to the competitive ethos began to appear within this society of companies. Traces of these changes were everywhere, but executive leadership reflected the evolution with particular clarity. McCall of the New York Life and Hegeman of the Metropolitan had managerial qualities not directly germane to life insurance marketing. Even the great figures of the late nineteenth century expansion — Hyde, McCurdy, Dryden — were, by the 1890's, interested in more than the race for size. Hyde, sated with success, declared in 1890: "My first ambition was to make the Equitable . . . the biggest life insurance company in the world. Henceforth it will be my ambition to make it the best." McCurdy retained the appearance of aggressiveness; when the Mutual's 1890 business failed to reach the goal he set for it, he pugnaciously announced that "there is no intention on the part of the Executive to steer the ship ashore or anywhere near it." But he spent much of the century's last decade maintaining an uneasy truce with the Equitable. Several times he responded to competition with attempts to get the New York legislature to establish legal limits on the companies' yearly business — an essentially negative and restrictive approach more in line with the Winston of the 1870's than the McCurdy of the 1880's.18 Aspects of the business other than insurance sales came to demand the magnates' attention. This was due in part to the growing complexity of life insurance. Under investigation in 1905, McCurdy revealed a woeful ignorance of his firm's operations. The agency business had "not been under my particular observation for a great many years." He declared, "I have never overruled one of the heads of the executive departments in my life"; for so authoritarian a man, this was an admission of lack of technical knowledge rather than a proclamation of administrative policy. Hegeman, too, confessed that "the business some time ago outgrew me." 19 The leaders increasingly were concentrating on their companies' investment activities. With its boundless possibilities of corporate influence and personal gain, the placement of life insurance assets piqued the interest of executives for whom, perhaps, the appeal of marketing competition had become passé. McCurdy liked to talk of the "pure banking"

22

*

THE LIFE INSURANCE

ENTERPRISE

role of life insurance, and considered "legitimate methods of increasing accumulation systematically employed" at least as important a business attribute as "management freed from antiquated precedent and dead tradition." James Hazen Hyde, the son of the Equitable's founder, said of his preparation at the turn of the century to assume command of the company, "my attention had been specially directed toward finance and general executive work." 20 As a result, this period saw the rise of men who took over the business end of company operations from chief executives whose real interests lay elsewhere. George W. Perkins was brought into the New York Life by McCall as "my right-hand man in the agency business," and with ardent assistants (Darwin P. Kingsley, Thomas A. Buckner) vitalized the company's selling force. In the Equitable, James W. Alexander, longtime and not overly dynamic assistant to Henry Hyde, took the presidency upon the latter's death in 1899. The assumption was that Henry Hyde's son James Hazen, upon coming into full control of a majority of the Equitable's stock in 1906, would accede to his father's place. But vice-president Gage Tarbell quickly emerged as the man in charge of agency and marketing matters. For all practical purposes, the Equitable's insurance selling activities were under TarbeU's control after the elder Hyde's death. Business operations in the Metropolitan rested not so much with president Hegeman as with vice-president Haley Fiske ("I . . . have charge of the whole company, except the financial end"). Only in the Mutual and the Prudential did McCurdy and Dryden maintain the tradition of the strong-handed president. But as finance and politics absorbed their attention, men of specialized business skills and interests came to play roles of importance: first vice-presidents Robert A. Granniss and Dr. Walter R. Gillette in the Mutual, agency director Leslie Ward in the Prudential. By 1905 much executive power had come into even more sophisticated and specialized hands. Corporation lawyers Richard Lindabury in the Prudential and Bainbridge Colby and Elihu Root in the Equitable took significant parts in company decisionmaking. 21 Powers behind the scenes — Warwicks — had existed before: McCurdy, Beers, Dryden, had been prime movers in their companies for years before each became president. But previously, figurehead chief executives and strong-minded Warwicks alike had been dedicated primarily to their companies' marketing activities. Now a functional distinction had arisen between hard-driving assistants in charge of the

A SOCIETY

ÓF C O M P A N I E S

*

23

firms' business machinery and presidents concerned more with high finance, public relations, and politics. By the 1890's, the channels of responsibility and authority were sufficiently organized, the pattern of the life insurance business sufficiently defined, so that it was possible to dispense with the heavy-handed entrepreneurial leadership characteristic of the decades following the Civil War. More personal features of the managerial elite bespoke the quick maturity of the life insurance business. Physical prepossession counted heavily in an enterprise so dependent upon salesmanship. Henry Hyde, tall and domineering, the heavy-set McCall and McCurdy, the towering and long-maned Hegeman, the immaculate Dryden, commanded respect and confidence as much by their appearance as by their abilities. George Perkins' manner exuded the easy expertise which characterized his executive performance. Relatively high educational levels and familial backgrounds far from the image of the self-made man were commonplace among the insurance leaders. Richard McCurdy boasted in 1893: "Probably in no other business are so many educated intelligences brought into the service of the participants in its success." Hyde and Perkins did not go to college, but both were the sons of successful agents in the companies that first employed them. McCurdy, son of a leading Mutual trustee, was a product of Harvard College and Harvard Law School; McCall had a politically prominent father and an education at Albany Commercial College; Darwin P. Kingsley, long Perkins' closest associate in the New York Life and the company's president from 1907, had a B.A. and an M.A. from the University of Vermont; Haley Fiske was graduated from Rutgers; Gage Tarbell was a lawyer; John F. Dryden had gone to Yale for several years (and was capable of chastizing a Senatorial colleague with his feet on his desk: "Come come, Senator. Take down your feet, this isn't the House of Representatives, you know"). 22 With style and flair the chief executives of the society of companies took themselves, often in clusters, to palatial country estates: McCurdy and Dryden to the New Jersey countryside near Morristown and Bernardsville; Hegeman and several of the New York Life's chieftains, including George Perkins, to Westchester; Hyde to Bay Shore in Long Island; McCall to "Shadow Lawn" at West End, New Jersey. These were intensely vocal and articulate men — McCall, McCurdy, Perkins, Fiske, and Dryden especially so. In a national magazine, McCurdy commemorated a recuperative trip in the West with a poem

24

*

THE LIFE I N S U R A N C E 23

ENTERPRISE

written in the form of a Greek choral ode. The willingness of Dryden, Perkins, McCall, and Fiske to communicate with the public was notable at a time when big businessmen, with the conspicuous exception of Andrew Carnegie, were not particularly responsive to this demand upon their time and talents. Henry Hyde's son, James Hazen, educated to a high degree of affectation at Harvard and destined by his doting father to take over the Equitable, was at once the epitome and the most disastrous example of the cultivated insurance man. A big business apologist had argued in 1902: "Even when . . . fortunes pass by inheritance into the hands of degenerate descendants their influence for good is but little impaired; since their wealth is in corporations under the control of the 'Fittest.' " But the younger Hyde's place in the Equitable seemed to many the very embodiment of irresponsible and untrammeled control. The hauteur so impressive in Henry Hyde or Dryden or Fiske or McCurdy became comic in this young dilettante who enjoyed such alien pleasures as violet boutonnieres and sweeping through New York's financial district in his coach-and-four. In a Harper's article he commented on the joys of coaching through France: "To me, these simple country people are neverfailing sources of interest, and their wonderment and open curiosity were most amusing." A special commitment to a public consciousness, if not conscience, was a characteristic of all the insurance leaders. But James Hazen Hyde's social perceptions were an almost satiric distortion: "To me it has always seemed that women are better off if they have a little house-work to do. During a recent trip in Texas, I visited one of the largest lunatic asylums. There I found that a large percentage of insane women were wives of farmers, the chief cause of their insanity being simply ennui" It may well have been that the younger Hyde was a luxury possible only in a mature corporate elite.24 Much of the underlying transformation of the life insurance business was summed up in the career of the New York Life's George W. Perkins. A highly successful agency manager in Chicago, Perkins was summoned to the home office to be McCall's liaison man with the company's agents. He quickly became the driving force behind the swelling insurance business of the New York Life, the prime creator of agency, managerial, and marketing policy. With McCall he vitalized the company's overseas business, and by the late 1890's was shaping its investment policy as well. The two men skilfully used politics and publicity to further the company's well-being. The contacts and reputation derived from this

A SOCIETY OF C O M P A N I E S

*

25

diverse corporate experience impelled Perkins into close relations with, and then a partnership in, J. P. Morgan and Company; from there he went to the finance committee chairmanship of United States Steel, to a central role in the creation of the International Harvester Company, and to an important advisory place in Theodore Roosevelt's Progressive party. Here was a new man in corporate enterprise, in investment finance, in national politics: in all of the loci of power in the United States at the turn of the century. He was an ideologue, a man driven by a vision of the corporation as an institution of great social and political and economic power. He was, in a latter-day phrase, the first of the business generalists of the new, complex, twentieth century capitalism — men whose ability to apprehend and manipulate power enabled them to move easily through the worlds of business, finance, politics.25 Yet Perkins was not a man of power in the sense of consummated control. All of his skill and influence in the insurance world did not prevent the Armstrong investigation of 1905, which ended the kind of corporation he envisaged and created. All of his money and place did not win the presidency for Theodore Roosevelt in 1912. He died in 1920, limited in influence and mentally shattered. Perkins' career of impressive and diverse powers, and ultimately decisive limitations, epitomized the corporate group that produced him: the turn-of-the-century society of life insurance companies.

III vfc An Ideology of Power

The evolution of executive leadership was but one expression of a maturing society of companies. The burgeoning life insurance giants also took on an ideological commitment to public service and private power not common to corporate enterprise. The need for self-justification apart from the profit motive stemmed from the palpable public interest in life insurance as "essentially a social economy." President James W. Alexander of the Equitable put the proposition in its classic form: "assuredly, an institution which exists for the benefit of widows and orphans . . . is one which ought not to be conducted on a low plane of competition." Legal and legislative precedents underscored the fact that life insurance companies bore to a special degree the public obligation that belonged to all chartered corporations. Nor did insurance men shy from the opportunity of articulating their business' raison d'être. Indeed, a quasi-public role had a positive business value: it was as useful to emphasize the social duty to sell insurance as it was to stress the social obligation of buying it. The head of the nation's largest insurance agency found "abundant indications" that churches and social organizations "hold that any man not having life insurance should not be permitted by public opinion to marry." 1 Thus the prevailing doctrine had it that life insurance was an instrument of peculiar social benevolence; its dispensers, bearers of a special social responsibility. The conservative president of the Connecticut Mutual, Jacob L. Greene, compared a life insurance company to a university and its officers to trustees. Vice-President George W. Perkins of the New York Life, at the antipodes of business policy from Greene,

AN I D E O L O G Y

OF P O W E R

*

27

referred to his company's assets as a "trust fund" and to its officers as "trustees." The Equitable's Gage Tarbell spoke of "trustees of the most sacred trust . . . on earth"; the Mutual's McCurdy, of "a great and sacred trust." Trusteeship implied responsibility (Oliver Wendell Holmes thought that life insurance "should be . . . the most secure of all enterprises"), and insurance officers in theory assumed the burden. Hegeman uprightly declared of the business: "Of all things its methods and conduct must surpass all the wives of all the Caesars — in being beyond suspicion." Company contributions to flood, depression, and yellow fever sufferers gave testimony to a rudimentary social consciousness.2 The theme of social responsibility drew strength from the rise of industrial insurance. The values attached to life insurance had a special poignancy when applied to the underprivileged. The "thrifty cottager" and the "honest poor" (as opposed to the "indigent pauper") joined the pantheon of beneficiaries previously dominated by the widow and the orphan. Industrial insurance, which "performs a mission not covered by any other institution in the world's affairs," inculcated thrift, patience, courage, morality, and industry in its policyholders; was "a beneficent and conservative force that can hardly be over-rated"; and was thought to lower the rate of pauper burials, thus assuaging taxpayers too. 3 In one sense this was a return, after a long night of entrepreneurial irresponsibility, to the Adam Smithian mystique of public good emerging from private gain. John McCall described his business as "a form of communism that allows unrestrained individualism," and Richard McCurdy reveled in the thought that life insurance was "an occupation which combined business with pleasure, business with sentiment, business with philanthropy, business with great and ennobling ideas of humanity." The Metropolitan's John Hegeman admitted to being impelled by "purely business motives," but could not see that "these motives . . . in any degree detract from the inherent beneficence of the business itself." These sentiments had little weight when set against the ideological commitment to growth and the force of competition. Thus, Richard McCurdy spoke of policyholders "participating in a great movement for the benefit of humanity at large." But when pressed on the fact that the Mutual's advertising stressed policyholder moneymaking, not philanthropy, he blamed it on "very swift competition from very strong and active and ingenious competitors." Nevertheless, the image of Emer-

28

*

THE LIFE INSURANCE

ENTERPRISE

sonian self-reliance encouraged and set to work through life insurance was a compelling one. It added substantially to the unusual prestige of the insurance enterprise. 4 The special qualities of the insurance business set it apart from the rest of the corporate economy. A New York Life official noted that no other enterprise had its own press and literature, and McCurdy majestically reminded his board: "It should be recognized always that we are a Life Insurance Company . . . and that we are not a bank, a railway company or an industrial corporation that we own and can do with as we can with our own property." Here, too, was a business with a special relationship to the element of time. The nature of the policy contract, and of the investments supporting it, presupposed a considerable corporate longevity. McCurdy in 1894 held forth on the prospects of the Mutual a half-century hence. Declaring that the company's record to date marked "an epoch in the history of human progress," he boldly predicted that it would have three billion dollars' worth of insurance in force in 1940.® It was not surprising that the magnates of an enterprise so consequential turned often to institutional imagery. As one spokesman put it, the life insurance business performed the functions of family, church, and state. Identification with religion came readily. McCurdy liked to speak of his business as a missionary activity. Henry Hyde, too, spoke easily of an Equitable agent's "missionary work" in developing a life insurance market in Spain, and George W. Perkins assured a correspondent: "Our profession requires the same zeal, the same enthusiasm, the same earnest purpose that must be born in a man if he succeeds as a minister of the Gospel." Darwin P. Kingsley of the New York Life found signs of grace everywhere: "What a picture of belief — I had almost said of faith — is presented by the securities that center in the vaults of the . . . companies doing an international business." He compared insurance agents to preachers, and thought that the deferred dividend policy resembled a religious doctrine of rewards and punishments in its effectiveness in spreading the gospel — the gospel of life insurance.® By the turn of the century more mundane comparisons seemed appropriate to the burgeoning size, wealth, and influence of the business. Company sales booklets distributed in the Civil War era stressed life insurance's protective, beneficiary function; those issued around 1900 emphasized the success of particular companies in accumulating surplus,

AN I D E O L O G Y

OF POWER

*

29

issuing dividends, earning profits. It became customary to consider, along with "the people's appreciation of its beneficent mission," the "commanding place" life insurance "has suddenly gained in American business and finance." One insurance leader described the change in emphasis more explicitly: "We have heretofore thought almost exclusively of [life insurance's] . . . moral and beneficent side; hereafter we shall think more of what we may call its physical side, of the enormous force which it will be compelled . . . hereafter to exercise in the affairs of men." T The enormity of the business became a ponderable factor in the ideology of life insurance. A company attorney pointed out that "as an institution" it "collects more money each year than the Government itself, disburses more than the receipts of all the custom-houses, and administers an accumulated treasure greater than all the money now in circulation in this country or the entire capital of our national banks." John McCall was impressed by his business' "colossal proportions" and the "still more enormous proportions which, by the operation of natural laws, it must assume in the future." Size and wealth were thought to add force to the beneficent purpose of the enterprise. The concentration of large blocs of securities in companies acting for millions of policyholders, rather than in the hands of "the very rich," excited one insurance man: "What a powerful influence for health, for financial and political peace!" Benevolence and power thus fused into an integrated corporate purpose. As John McCall put it: "The life insurance companies of to-day cannot be truthfully described either as money-making or local institutions; for there is neither profit in, nor limit to, their benefactions." Although the business did not participate in the corporate consolidations common at the turn of the century, its leaders upheld the prevailing values of concentration and harmony; one of them considered the growth of the great insurance companies to be "the most striking feature in an age full of remarkable activities." "Great is the power of system, order and discipline," declared Henry Hyde; and James Alexander approvingly observed: "This is the day of concentration in business." Although McCurdy warned his board lest the time's industrial consolidation and expansion "befog our perceptions and lead to confused notions of our own powers," he vigorously espoused "the substitution of the accumulative idea" (in the form of deferred dividends) for "distribution—dispersal—dissemination of assets." 8 The ideology of life insurance reflected also the ethos of national ex-

30

*

THE LIFE

INSURANCE

ENTERPRISE

pansion prevailing around 1900. Insurance men, no less than imperialists, hopefully looked beyond America's borders. Darwin P. Kingsley proclaimed: "Life insurance to-day is the very spirit of the Anglo-Saxon race; its methods are masterful; it seeks to melt and mingle with all men; it learns and it teaches; but chiefly, it has an ideal for which it strenuously labors." His interpretation of the Big Three's foreign business was that life insurance now had "more serious work": the development of "a community of interest with all men." Soaringly he proclaimed: "The strong boxes of these companies are a prophecy of the parliament of man." John McCall, too, was impressed by American life insurance "as a beneficent enterprise which has assumed international proportions." 9 As parallels with religion seemed most appropriate to convey the beneficence of life insurance, so did the metaphors of statecraft suggest the strength and influence of the society of great companies. Mutual's president McCurdy spoke to his board as "your prime minister"; Perkins called the New York Life's foreign business division the company's "State Department"; a Washington lobbyist referred to himself as the "Confidential Agent" of his firm. Even so mundane a factor as business competition became cloaked in the language, and the hypocrisies, of war. Hyde took up the patois with particular ease, complaining to McCurdy that "although our guns are silenced we are still under fire," or piously denying "that I had under conditions of peace taken any hostile action against you or your Company, [but] . . . of course under pressure of continuous attack I cannot but protect the interests of the Equitable. Under all circumstances in the past my voice has been for peace." To his consulting actuary, Sheppard Homans, he declared: "I always listen to overtures of peace from any quarter, but if the companies do not desire peace, I am prepared for war, and I think on the whole I rather like war" — which, if understated, was true enough. The imagery of nationalism came readily to Darwin Kingsley; exhorting a group of agents to greater efforts, he concluded: "If you are the best kind of a New-York Life man, you feel much as the old Roman felt when his loyalty and his pride of nationality had taught the world that in some sense every Roman was a King." 10 All of the artifacts of a political order were at hand: an often venal press; wars between sovereign companies; agent armies in the field. The great companies' leadership was deeply involved in state, local, and national politics by the turn of the century, and abundant evidence

AN IDEOLOGY

OF P O W E R

*

31

suggested that political skills were necessary for success in the enterprise. Stewart L. Woodford, United States ambassador to Spain during the tense years preceding the Spanish-American War and former counsel for the Metropolitan, found his insurance experience distinctly applicable to his new situation. He wrote to Hegeman of his first meeting with the Spanish Foreign Minister: "I talked pretty plainly. I fancy that I copied your suavity and [Haley] Fiske's directness." Political experience was a notable element in the background of several leading life insurance men. Stephen H. Rhodes, president of the John Hancock, had been mayor of Taunton, Massachusetts, as well as a member of the state's Senate and its insurance commissioner. John McCall grew up in the intensely political atmosphere of his father's Albany tavern, and made an early career in the Democratic party of New York. He was the state's insurance superintendent when the Equitable hired him in 1886 as its comptroller. Darwin P. Kingsley was Colorado's superintendent of insurance when in 1888 he began an association with the New York Life which led eventually to the company's presidency. Successful insurance men, if not originally politicians, sometimes eventually became so; and again the connection between their business and public careers seemed more than casual. One year after Morgan G. Bulkeley was elected president of the Aetna Life Insurance Company of Hartford, he became the city's mayor. From 1888 to 1903 he was governor of Connecticut, and in 1905 was elected to the United States Senate. John M. Pattison, who had been an Ohio legislator, state senator, and United States congressman before becoming president of the Union Central Life Insurance Company, later was elected governor of Ohio (in the same year that Bulkeley went to the Senate). A complaisant New Jersey legislature made the Prudential's John Dryden a United States senator in 1902. And George W. Perkins, after a long period of behind-the-scenes activity, emerged on the political stage as Theodore Roosevelt's adviser and confidant in the 1912 Bull Moose campaign. 11 The intimacy between politics and life insurance was natural. The business, more than most at the time, was involved in, and had demands to make upon, an extensive state regulatory structure, and stood to gain by drawing capable men from that system. But there was another, more positive, factor at work. The nature of the business itself always placed a high premium on the political arts; by 1900 this was particularly true of the society of great companies. The institutionalization that came with pandemic growth lessened the need for chief executives who were pri-

32

*

THE LIFE INSURANCE

ENTERPRISE

marily insurance technicians and salesmen. An extensive regulatory structure and growing corporate emphasis upon organization, morale, and public relations put a premium on the skills of politically minded executives. It was not surprising that companies so led and motivated treated government regulation with something other than the easy contempt of their corporate peers. Supervision sometimes was welcomed as a prop to life insurance's reliability rather than feared as a drag on its capacities. James Alexander boasted — where an executive in another business might have complained — that an "electric searchlight is ever directed on all the transactions of American life assurance companies. There is no other enterprise which is subjected to such public scrutiny." The size and importance of life insurance, he thought, made it "worthy of the best endeavors of the best people in the community to keep it decent, pure, and dignified." A number of leaders — including McCall, McCurdy, Diyden, Perkins, Kingsley, and Alexander — interested themselves in a movement for Federal regulation of the life insurance business: national control, a matter of concern to other corporate groups, seemed a safeguard and an opportunity to the executives of the great companies. When the clouds of the 1905 scandals began to gather, the reaction of the New York Life's executive committee was to speak of "our increasing sense of responsibility in the administration of a business which comprehends the whole civilized world in its activities," and to commend "the policy of an open ledger . . . the value of international supervision." 12 In a speech to Boston's Commonwealth Club in October 1905, Louis D. Brandeis handed down a classic indictment of the large life insurance companies. He recognized their marketing achievements, and noted that they were "the creditors of our great industries with all the power which that implies." But his conclusions — that their power was exercised so "selfishly, dishonestly . . . inefficiently" that they had become "the greatest economic menace of to-day"; that "these large insurance companies through the power which inheres in the control of quick capital expose the community to dangers which no other kind of corporation presents to so great an extent" — turned the companies' strengths into a prime social menace.13 Brandeis' denunciation underlined a home truth: that ideologies had consequences. By proclaiming the social importance of their enterprise,

AN I D E O L O G Y

OF P O W E R

*

33

the life insurance magnates earned the advantages of quasi-public status. But they also assured that they would be subject to countering restraints. The same complex of tensions — between opportunity and responsibility, between power and diffusion — appears in every sector of the great companies' business — their corporate structure, their domestic and overseas marketing, their investment and political influence. With unparalleled purpose and skill the managers sought to control their business environment; but everywhere their efforts came into conflict with limiting factors which finally put significant checks upon their power and altered the face of the life insurance enterprise.

What still remains is to look at business as a social system. Paul Lazarsfeld, "Reflections on Business"

Part Two

*

The Business of Life Insurance

Rapid growth and impressive size were the determinants that shaped the companies' corporate structure and their domestic business technique. Giantism produced great wealth, which made control of the large firms a tempting goal. Yet purposeful domination of companies so committed to an image of public service was difficult; and the gap between ambition and fulfillment generated the evils of nepotism and managerial irresponsibility. In addition, the size of the great firms led to increasingly complex and sophisticated business techniques, which blunted purposeful decisionmaking. Thus growth provided the companies with the sinews of power; but it also raised a need for bureaucratized system and order which acted as a constraining force.

IV *

Growth and the Corporate Structure

As the substantial life insurance firms evolved into a corporate institution, their internal organization changed. Functions of increasing scope and complexity led to the bureaucratization of the corporate structure: a New York Life trustees' committee concluded in 1892 that "the business of the Company has outgrown the methods and checks now in use." 1 Home office staffs grew to impressive size: the Prudential's staff went from 89 employees in 1883 to 250 in 1890; the Metropolitan employed 1081 in 1897; the Mutual employed 645 in 1906. The Mutual's 1903 home office organization had a policy loan department; treasurer's (investment) department; law department; agency department; cashier's department; auditor's department; department of supplies, printing, and advertising; actuary's department; medical department; department of revision; secretary's department; policy department; records and mails department; and foreign department. By the beginning of the new century the Metropolitan was well on its way to becoming one of the twentieth century's prime symbols of corporate vastness and efficiency. Its president, John R. Hegeman, appropriately was called "a business machine"; its home office had more typewriters than any other office building in the world.2 As company departments proliferated, authority became more centralized: bureaucratization intensified the pressure for decisionmaking at the highest managerial level. The New York Life's trustees in 1887 formally gave President Beers and his vice-presidents receipting and endorsing authority over company bills and notes. Two years later the rapidity and intensity of the competitive struggle for size led Beers to

30

*

THÈ LIFE INSURANCE

ENTERPRISE

ask for authorization to take such measures "as he should consider best from time to time to protect and advance the interests . . . of the Company." 3 The 1890's saw steady delegations of power by the directors to the Prudential's officers. The top managers could convey company-held real estate and report to the board later; could open business in any state and file the necessary papers without specific authorization; could assign mortgages and deliver releases and quitclaims; could sell stocks and bonds. In 1901 the executive committee's bill-paying was systematized so that the committee would not have to give its detailed approval; in 1904 the board formally delegated broad authority to the president and the three leading vice-presidents.4 Boards of directors, once sources of capital, business acumen, and decisionmaking, sank to rubberstamp roles. By 1905, Mutual trustee George S. Haven did not know that he was a member of the salary committee, or what salary was paid to President McCurdy. A director's chief function came to rest in public relations: to appeal to prospective customers by his regional or other representation, or to reassure existing policyholders by his respectability and stature. Trustees such as David Ames Wells, who had served on the New York Life's board because he was the best equipped man of his time to deal with tax matters, were no longer necessary in institutionalized corporations that had employees, even departments, to handle such affairs.5 Committee minutes, once evocative records of company life and development, became after 1900 empty, formal things, fitting chronicles of the ritualistic meetings that produced them. As executive decisionmaking concentrated in top management by authority as well as in fact, secrecy became easier in practice and seemed more necessary in theory. With remarkably unfortunate imagery, Richard McCurdy discussed the problem: "Civilized men cannot perform all the offices of nature upon the sidewalk, however proper and necessary they may be in themselves. So the inner workings of the machinery of any technical business cannot be exposed to the observation of the public with propriety." George W. Perkins asserted: "you have got to give men authority . . . you have got to give them latitude." 6 The growth and centralization of the corporate structure expressed itself materially, too, in the expansion of home office buildings. A sentiment quite independent of the need for space impelled the company chieftains to vie with each other in erecting impressive edifices. Grandiose as geometric increases in size and wealth may have been, they lacked

CORPORATE

STRUCTURE

*

39

the satisfying corporeality of shining rails, roaring blast furnaces, busy refineries. Men of great consciousness of place such as Hyde, McCurdy, McCall, Dryden, and Hegeman looked for — and found in elaborate home offices — the sort of physical expression that their unmaterial business otherwise denied them. In 1887 the Equitable enlarged and renovated its building at 120 Broadway, and the stamp of Henry Hyde was everywhere: in the stainedglass portrait of his dead son dominating the front; in the select club and restaurant that he partially owned; in the great flagpole boldly commanding the surrounding skyline; in the size and grandeur of the building itself. The New York Life embarked on a nation-wide building program during the late 1880's, and in 1895-96 added a twelve-story annex, designed by McKim, Mead, and White, to its office at 346 Broadway. The Mutual, too, expanded its home office at 34 Nassau Street in 1892. The industrial firms, comparative newcomers to expansion and prosperity, blossomed forth with particular éclat. The Prudential opened an elaborate new structure in 1892. Its cathedrallike quality reflected the active intercession of President Dryden; he told his board that "the idea is to construct a building which shall typify and symbolize the character of the business of the Prudential, exemplify its all-pervading spirit of beneficence and its ingrained love of the golden rule." (The New York Life building, too, had an entrance resembling "an ancient temple — and a temple it is — a Temple of Humanity.") In 1893 the Metropolitan occupied the first portion of what would come to be the most distinctive of home offices. The Madison Square structure boasted a staircase inspired by the Paris Opera, a president's office furnished at a cost of $90,000 and — by 1909 — the famous tower (supposedly Hegeman's idea), then the tallest on earth. Even the generally restrained John Hancock occupied a new home office in 1889 which featured an impressive triptych of Time and Death, Prudence succoring Misfortune, and Wisdom subjugating the Spirit of Flame; Fame and History supported the company's coat of arms.7 By 1900 several firms had invested heavily in office buildings in other cities. Although generally these were unsatisfactory investments, the Metropolitan's Hegeman spoke for all when he outlined their real purposes: "for the sake of inspiring local pride, getting a local hold, securing the local business." 8

40

*

THE LIFE I N S U R A N C E

ENTERPRISE

2 Evils in the business structure — insider control, excessive salaries, nepotism — flourished in the midst of corporate maturity and drew nourishment from growth and institutionalization. Mutual companies such as the New York Life and the Mutual supposedly were governed by the votes of their policyholders, but policyholders showed little inclination, and got less encouragement, to be active in the choice of officers.9 Proxies were an ever ready, but rarely needed, weapon against policyholder revolt. Legend had it that Beers of the New York Life had a trunkful in his house; that Winston and McCurdy of the Mutual had 20,000 to 30,000 proxies — called their "children of Israel" because they were too numerous to count — in their possession. Sporadic policyholder outbursts were put down with ease. In 1869 the Mutual leaders compelled voters to write their names on the backs of their ballots as a form of intimidation. The end result of a New York Life policyholders' committee roused by the Beers scandals of the early 1890's was the election to the board of a "reform" director who thereupon pledged to support the incumbents. 10 Although the activities of minority stockholders in the Prudential and the Equitable were more substantial than the occasional stirrings of the mutual firms' policyholders, the pattern of executive control was not essentially different. The minutes of the Prudential and the Metropolitan boards of directors show consistently unanimous votes for the existing officers; and the Metropolitan's newspaper announcements of stockholders' meetings were anything but conspicuous. Prudential policyholders could vote until 1880, but received no notice of meetings; after 1880, a New Jersey law deprived them of the franchise. The company's caution was superfluous; in the early 1900's the Metropolitan gave the vote to all of its policyholders, but in 1904 only 38,000 of some 8,000,000 bothered to use it. 11 With weak boards of directors and minimal stockholder and policyholder voting influence, high executive salaries and nepotism flourished. The restricted nature of the rewards open to the companies' managers encouraged these abuses. Commission arrangements were widespread up to the 1890's, but as business volume reached astronomical proportions these were replaced by straight salaries.12 There were only limited opportunities for stock speculation, and dividends were restricted by the charters of incorporation. In mutual companies, not even the grati-

CORPORATE

STRUCTURE

*

41

fications of stock ownership were available. Just as impressive home offices satisfied the executives' need for material manifestations of their corporate success, so did inflated salaries, the patronage of nepotism, and affiliated personal investments compensate for the difficulties that stood in the way of profit accumulation. The salaries of the companies' top officials were among the highest in the United States. Solemn rituals enacted by modest executives and insistent boards accompanied each new boost. Richard McCurdy, earning $100,000 in 1901, disarmingly left the matter of his salary to his board's discretion; they asked him to leave the room and increased his remuneration to $150,000. With simple frankness, he noted that no other insurance executive received so much, and took the increase as the board's fair appraisal of his worth. The New York Life's John McCall also earned $100,000 by 1901. George W. Perkins, weighing a tempting partnership offer from J. P. Morgan and Company, went through a salary-raising ritual very similar to McCurdy's for an increase to $75,000. Hegeman, close to $100,000 a year on a commission plan in the early 1890's, voluntarily switched to a fixed salary. Although he rested content with $90,000, his board in 1905 awarded him a $10,000 bonus. However, he modestly refused to draw the supplement. 13 Justification of such substantial compensation to the executives of eleemosynary institutions raised certain difficulties. The Mutual Life's counsel tried to relate proper salary size to the amount of a company's insurance in force, but was not convincing.14 Chauncey Depew argued that Henry Hyde's remuneration was necessary to keep him from the temptation of selling his Equitable stock, the dividend earnings of which were only $3500 a year. McCurdy said of his executives' salaries: "I do not think any one of them is overpaid, for the conditions in which they live and move and have their being and for the character of the business which they do." Dryden, too, defended his salary by reference to the big business milieu: "The ability to achieve, the ability to produce, the ability to do something, is a commodity that commands its price in the market." Pressed with the example of relatively low-paid senators and Supreme Court justices or, for that matter, presidents of the United States the Prudential chieftain argued that the prestige and honor of high government position compensated for the lack of financial reward. 15 If he left unresolved the conflict between high salaries and the quasi-public ideology of his business, the fault was not his. The same growth in size that justified large salary increases made it

42

*

THE LIFE I N S U R A N C E

ENTERPRISE

easier to fit relatives into lucrative company positions. Clusters of brothers, nephews, cousins, and sons-in-law of top executives appeared everywhere. Company presidents were especially solicitous of their sons. James Hazen Hyde recalled: "I had always been brought up to consider my legitimate life work to succeed my father in the Equitable." He became a director while still in Harvard; entered the company upon his graduation in 1898; and in five years was chairman of the executive and finance committees, vice-president of the company, and the recipient of a $100,000 annual salary. Forrest Dryden served an extensive, if not distinguished, apprenticeship in the Prudential, and succeeded his father as president in 1910. Richard McCurdy's dapper son Robert drew about $110,000 in salary and commissions as director of the company's foreign business department during the early 1900's. John McCall's oldest son served more modestly as the secretary of the New York Life; his son-in-law, Darwin P. Kingsley, eventually became the company's president. Anthony R. Kuser, Dryden's son-in-law, was a director of the Prudential. 16 This sort of managerial irresponsibility was endemic in the insurance business. Many smaller firms were at least as culpable. None of the great company presidents, for instance, could match the arrant nepotism of the head of the Security Mutual of New York: this worthy admitted that his wife, son, wife's nephew, son-in-law, "and my wife's sister's husband" were on the payroll. 17 Nor did these failings depend upon the form of corporate ownership. Flamboyant, expensive, near corrupt management existed in mutual and stock companies alike. The evils of growth and the life insurance business' peculiar restraints upon profitmaking cut across most divisions of the corporate structure. 3 The conflict between checks on profit and the temptations presented by towering assets was particularly severe in the large stock companies. For here was the same framework of ownership which, at the turn of the century, was yielding a profit of tens of millions in other enterprises. Yet charter restrictions limited the dividend yield of Metropolitan and Equitable stock to 7 percent and that of the Prudential to 10 percent. Nor was the companies' stock capitalization subject to indefinite expansion. The Metropolitan's original capitalization was $200,000, half of which it retired during the doldrums of the 1870's. But in 1883, when its new

CORPORATE

STRUCTURE

*

43

industrial insurance business was beginning to catch on, capitalists invested $400,000 to bring the company's stock total to $500,000. As the Metropolitan prospered, it created another $1,500,000 in capital out of its surplus. Joseph F. Knapp, its president until 1891, had over $700,000 and his successor, John R. Hegeman, had $275,000 of the company's final capitalization of $2,000,000. Knapp's more than 28,000 shares paid him annual dividends of almost $50,000; a combined salary and commission arrangement gave him another $112,000 in 1891. But no additional stock supplements were forthcoming, and although the Metropolitan continued to expand, Hegeman's stock and salary earnings did not surpass Knapp's total. Indeed, from 1897 the Metropolitan, in conjunction with the Prudential, paid dividends to its industrial policyholders, although the policies' terms did not require it to do so. From that time, the company's practice was to keep the surplus at 10 percent of its assets, and to distribute the remainder to its policyholders. Only $140,000 a year went for stockholders' dividends. Hegeman and the Knapp heirs, who implicitly supported the management, together controlled a majority of the stock, and although financier groups made attempts to buy control of the company, no further changes in capitalization occurred. But the paradox of a stock company that paid no significant dividends remained. Mutualization was a logical step, would strengthen the company's public image, and promised to be the only way for the stockholders to get a substantial return for their securities. Hegeman contemplated such a move in 1902, but his legal advisers dissuaded him. In 1905 the company was still almost a decade away from mutualization.18 The clash of values inherent in the position of the great insurance companies both as private corporations and as quasi-public institutions wracked the Prudential. The company's initial capitalization in 1875 was $100,000; but the stockholders had actually contributed only $91,000. In the first ten years of the firm's existence its capital slowly increased; on January 1, 1885, it totaled only $115,000. A potential crisis in control arose at the beginning of 1880. Policyholders, who according to the Prudential charter could vote for directors, now could outvote stockholders. But on March 3, a complaisant New Jersey legislature passed an abbreviated piece of legislation, known as The Bill of a Hundred Words, which abrogated the voting rights of the policyholders.19 As in the case of the Metropolitan, stockholder enrichment came

44

*

THE LIFE I N S U R A N C E

ENTERPRISE

primarily through increased capitalization. The surplus of the company, which rose from $6,115 in 1877 to $13,324,000 in 1904, provided new capital funds. The Prudential's stock increased by 30 percent to $149,500 in 1885; by 40 percent to $209,300 in 1887; by 100 percent to $418,800 in 1889; again by 100 percent to $837,200 in 1890; by 40 percent to $1,162,800 in 1892; and to an even $2,000,000 in 1893. Substantial profits accrued to the stockholders who shared in these increases. The Massachusetts insurance commissioner commented in 1903 that the Prudential's stockholders "have already received enrichment beyond what avarice could have dreamed of when the Company started," and by 1909 over $5,500,000 had been earned in dividends on the original $91,000 investment. 20 Yet compared to the hundreds of millions that Carnegie and Rockefeller and, later, Ford took out of their companies, or to the tens of millions in fees and stock earnings derived from the organization of United States Steel, or to the exploitation of railroads, utilities, and other quasi-public corporations, the Prudential's earnings were not spectacular. It soon became clear that the peculiar nature of the business set limits even upon stock expansion. Neither the company's growth nor its well-being were dependent upon stock increases; the capital supplements of the 1880's and the 1890's represented withdrawals from surplus earnings, not the injection of new funds. In 1898 a group of Prudential stockholders proposed a bold new capital increase (out of the surplus) from $2,000,000 to $5,000,000. Dryden, who had supported the previous stock supplements, now drew the line, warning that so large an expansion would be harmful to the company and unfair to the policyholders. Considerable outside pressure supported him. Hegeman and Fiske of the Metropolitan wrote to Dryden strongly protesting the move as one which "would result in serious attacks upon Industrial Insurance generally" and would contribute further to the already high cost of policies. They argued that "in this country the business of insurance is looked upon as a public, and not a private, business; and . . . managers of companies are looked upon as trustees for the policyholders rather than for the stockholders." The public, policyholders, and insurance commissioners shared these sentiments, the Metropolitan executives warned. The state insurance officers of Connecticut, where Hegeman lived and wielded much influence, and of Ohio confirmed this threat. 21 Dryden's volte-face may also be explained by the development of the

CORPORATE

STRUCTURE

*

45

Prudential. As the company became, in size as well as function, an institution of manifest social importance, Dryden the insurance officer took precedence over Dryden the stockholder. A significant portent was his 1897 agreement with the Metropolitan to distribute some of the company's huge surplus to its industrial policyholders. The ideology of life insurance made the normal acquisitiveness of stockholders seem alien, out of place. In the Prudential directors' minutes of January 5, 1899, the "voluntary" dispersal of dividends to policyholders took symbolic precedence in place and attention over the usual 10 percent capital distribution to the stockholders. The close juxtaposition of ownership and management had not changed; here, as in the other stock insurance firms, the leading stockholders served as officers or as directors. But the managers inevitably were more engaged in business expansion than in earning legally circumscribed dividends or exploiting limited possibilities of stock expansion. These restraints on profitmaking were countered by the potential of the companies' great investment capital. Just as the prospects of business growth took precedence over a restricted stock-earning capacity, so did managerial enterprise give way to the greater stimulations of large-scale fund placements in the securities market. When the Prudential's directors gave Dryden, Leslie Ward, and Edgar Ward, the company's leading stockholder-directors, authority to vote the Prudential's security holdings, they gave a prize more pleasing than an increase in Prudential dividends — or, one suspects, than a triumph in insurance marketing.22 This evolution of emphasis underlay Dryden's 1903 arrangement for perpetuation of Prudential stock control by his group of insiders. According to this agreement, a majority of the firm's stock would be sold by the major Prudential stockholders to the closely allied Fidelity Trust Company of Newark. In turn, a new issue of Fidelity Trust stock, increasing its capital from $1,500,000 to $3,000,000 and sufficient for control, would be taken by the Prudential. Annual meetings, and other details, would be so arranged that the group controlling both the Prudential and the Fidelity Trust would act first in its capacity as directors of the insurance company, and thus ensure that that corporation was the senior partner of this strange and highly entangling alliance.23 Dryden later explained that he had been led to the exchange of stock by fear of "the attempts of any selfish interests to get control of [the] company for selfish purposes," by his own emotional commitment ("the company has been my own life work, and I had my pride in it"), and

46

*

THE LIFE INSURANCE

ENTERPRISE

by his desire to prevent further stock increases which would heighten the possibility of the firm drifting into unsafe hands ("I had concluded that the company had reached its length, that it had gone as far as it ought to go"). Whatever the validity of Dryden's justifications, a manifest result of the arrangement was to put under the control of one group of insiders an insurance company with great investment potential and a trust company with great investment flexibility. For not least among the frustrating constraints inherent in the insurance business were those surrounding its investment practices; and the earning capacity of trust company stock was not as circumscribed as that of an insurance company. Finally, sale of the Prudential stock and the increase in Fidelity stock would have given the participants the advantage, "not ordinarily associated with such control," of an estimated $6,000,000 profit. Dryden's plan was a significant thrust against the profit limitation that so paradoxically accompanied the expansion of the great life insurance firms.24 No less revealing was the reaction to the plan. As in the case of the 1898 attempt to enlarge the capital stock, insurance commissioners and the Metropolitan rose in protest. Twelve state insurance officers opposed the Fidelity-Prudential merger. The Massachusetts commissioner in particular was aroused: only a few years before he had got the Prudential to agree to reduce its already existing investment in Fidelity stock on the ground that that investment surpassed the insurance company's surplus and capital. Bluntly the commissioner declared: "Such concentration of authority, so far removed from the reach of the individual stockholders, is contrary to public policy." In 1904 he extracted, on the threat of withdrawing the company's Massachusetts license, an agreement by the Prudential to limit its trust company holdings to 50 percent or less of its surplus. Wisconsin's commissioner refused to issue a state license to the Prudential until a court order required him to do so.25 Once again Hegeman and Fiske spoke up: "This proposed compact revives the memories of [the proposed capital increase of] 1898." They saw legal complications, commissioners' protests, hostile legislation, and denigration of the reputation of industrial insurance resulting from the scheme, which "savors strongly of reprehensible stock-jobbing methods." It was "unbecoming to a Life Insurance Corporation whose repute should be like Caesar's Wife." Prudential minority stockholders, too, objected to the plan, and brought suit in the New Jersey courts. The

CORPORATE

STRUCTURE

*

47

Court of Chancery granted an injunction blocking the Prudential's purchase of Fidelity Trust stock, declaring that the insurance company's managers "were not elected to revise the laws of New Jersey, or to devise schemes for evading those laws." 26 In response to this pressure, the Fidelity limited its stock increase to $2,000,000, and sold eight shares of its Prudential stock to ensure that it did not have a majority. But the holdings of the interlocked insurance company-trust company officers, combined with the two institutions' blocs of each other's securities, made for "an effective if not a technical control." And most of the new Fidelity stock was purchased by the Equitable, which was in close managerial alliance with the Prudential. 27 So Dryden adhered to his great plan for internal, interlocking control of trust company and insurance company; for plumbing the investment possibilities of the insurance company's assets; for imaginative exploitation of the potential value of the Prudential's stock. But the reaction — from court, competitor, commissioners — made full implementation of the arrangement hazardous indeed. The Armstrong investigation of 1905 and an inquiry by New Jersey in 1906 heightened public awareness and disapproval of the merger, and the fundamental awkwardness of manipulating the stock of a quasi-public corporation remained. As in the case of the Metropolitan, mutualization — eliminating the company's stock capitalization — was the long-run solution to the problem. 4 More dramatic than the controversy over the Prudential-Fidelity merger, but stemming from the same dichotomy between corporate giantism and the restrictions of the insurance business, was the Equitable's time of troubles in 1905. The conflict in that company was a major struggle for managerial and stock control. The ultimate consequences included substantial changes in both management and ownership, and New York's Armstrong investigation of the life insurance business. From the beginning, Henry Hyde defined the Equitable's purpose as business growth rather than stockholders' profits. He insisted that the company charter limit investors' earnings to 7 percent on the $100,000 worth of $100 par value shares. As the Equitable prospered, Hyde gathered together a majority of 502 shares. Little as the stock was worth in direct earnings (Hyde's portion brought yearly dividends of $3,514), it had an immense value as the ultimate basis of its owner's authoritarian

48

*

THE LIFE INSURANCE

ENTERPRISE

direction of the Equitable. As Jacob H. Schiff, a director, put it, the company was "at the mercy of one man"; at "the very bottom of the whole question, of the whole system" was the fact that "Mr. Hyde had a majority of the stock." In 1902 the Metropolitan commented on reported attempts by Wall Street magnates to secure control of the Equitable's stock. Vigorously it warned that such an occurrence "will be the severest blow ever dealt to the business of life insurance." 28 Henry Hyde died in 1899, confident that the company would pass on as a piece of property to his son James Hazen Hyde. He expected James W. Alexander, long his chief assistant, to act as tutor and prop while the younger Hyde prepared to become the Equitable's chief executive. In 1895 he put the majority bloc of stock in trust for his son, with Alexander one of the trustees. The younger Hyde became a voting trustee of the stock in 1897, and was to come into complete control in 1906 when he reached his thirtieth birthday. As that time approached, his relations with Alexander grew strained. The latter dropped his trusteeship in 1903, and by early 1905 was openly at odds with James Hazen Hyde. He criticized the young man's "public coaches, special trains, elaborate banquets, costly and ostentatious entertainments, accompanied . . . by continuous notoriety of a flippant, trivial, cheap description." Alexander and those supporting him called for Hyde's removal from active management in the company and for the inclusion of policyholders in the election of company directors.29 The struggle between Alexander and Hyde was a classic example of the ineluctable antagonism between corporate management and a relatively detached corporate ownership. The critics of James Hazen Hyde's frivolity and irresponsibility, the exponents of a system of policyholder voting which meant greater control for the managers, were the men most closely associated with managerial power, or who desired such association. Alexander himself, with his years of close association with Henry Hyde, could not help but look upon the injudicious son as an impertinent upstart and resent the outright control which would so easily come to the young man. Gage Tarbell, like Perkins of the New York Life and Fiske of the Metropolitan, was very much the driving force in the Equitable, the agency man most responsible for the firm's operation as an insurance-selling enterprise. Strong-minded, arrogant, jealous of Perkins' growing power in the worlds of insurance and finance, full of the sense of his indispensability to his company, aware of the

CORPORATE

STRUCTURE

*

49

check to his ambitions that James Hazen Hyde's supremacy might mean, Tarbell firmly resisted the interloper. Bainbridge Colby, rising corporation lawyer and a behind-the-scenes power in the Equitable, cast his lot with Alexander and Tarbell.30 A third factor — control of the Equitable's assets — added another dimension to the conflict between management and ownership. An extraordinary value attached to the possession of a majority of the Equitable's stock. Individual shares brought one to three thousand dollars on the market — a value out of all proportion to their dividend earnings and book value. Surely nothing but his stock holdings, in temporary trust though they were, earned for James Hazen Hyde an Equitable vice-president's salary of $100,000 a year and directorships in forty-five banks, trust companies, railroads, and other firms. Hyde claimed that extravagant cash offers were made to him for his stock rights: $4,000,000 from George J. Gould, $5,000,000 from Henry C. Frick, $7,000,000 from George W. Young, $10,000,000 from George Haven and James Stillman.31 Clearly, interests greater than those of Alexander and his associates were involved. Frick headed an Equitable directors' committee which took the statements of Hyde and Alexander and presented a report damning both sides. Reports circulated that a group of financiers — Stillman of the National City Bank, Jacob Schiff of Kuhn, Loeb and Company, Edward H. Harriman of the Union Pacific, Frick of United States Steel — were pressing to obtain control of the company. The offers of Young and Haven represented attempts by the Mutual to take over its old rival. Finally, in 1905, James Hazen Hyde gave in to these manifold pressures from the financial community. Apparently angered by Harriman's efforts to pry loose his stock control, he suddenly sold his shares to Thomas Fortune Ryan, a free-lance corporate organizer and stock speculator, for a comparatively modest $2,500,000. 32 The utmost circumspection surrounded Ryan's acquisition of the Equitable. In accordance with the purchase agreement he put the voting power of his holdings into the hands of three trustees of impeccable respectability: former President Grover Cleveland, the inventor George Westinghouse, and New York Supreme Court justice Morgan J. O'Brien. Paul Morton, a former Secretary of the Navy who had been in charge of Ryan's New York street railway consolidation, replaced Alexander as president of the Equitable. Modestly Ryan explained that a sense of "public duty" — and the desire, as a longtime political admirer of

50

*

THE LIFE INSURANCE

ENTERPRISE

Grover Cleveland, to give that worthy a position appropriate to his eminence — moved him to obtain the stock. To unfriendly contemporaries, however, Ryan's interest in the Equitable's great surplus and its immense investing powers seemed a more likely explanation. Yet Ryan already had strong connections with such substantial sources of investment capital as the Bank of Commerce and the Morton Trust. There was talk, too, of the psychological pleasures to be derived by a stock manipulator of uncertain reputation from control of so immense and respectable a corporation as the Equitable. "How much is it worth to a very wealthy man to come in a day to be regarded as the greatest of financiers?" one observer asked.33 Ryan may well have had less grandiose expectations. His fortune of between twenty-five and thirty-five millions was founded on the profits of corporate reorganization: the American Tobacco Company and the Metropolitan Transit Company were his creations. Among Ryan's holdings was the Washington Life Insurance Company, which was in financial and managerial trouble. It is possible that he expected the Equitable to take over the lesser firm in an arrangement profitable to its stockholders. It may be, too, that he had an eye to an advantageous settlement with the Equitable should it mutualize and buy in its stock.34 But his tenure of Equitable ownership brought him no apparent gains. The glare of publicity attending the Equitable crisis, the Armstrong investigation in late 1905 and the rigorous New York legislation that followed, the very probity of the trustees, made any untoward action by Ryan all but impossible. Grover Cleveland declared in 1908 that Ryan never "offered a suggestion nor has he approached the trustees directly or indirectly." In December 1909 the financier sold his Equitable stock to J. P. Morgan — for the same price (plus interest) that he had paid more than four years before. 35 Whatever Ryan's underlying intentions were, like Dryden in the Prudential-Fidelity Trust merger he found the nature of the business a substantial hindrance to his aspirations. The Equitable's stock, commonly supposed to bestow great power upon its majority holder, turned out for James Hazen Hyde, and then for Thomas Fortune Ryan, to be instead a conveyer of weighty, unavoidable, and fundamentally not very profitable corporate responsibilities. Thus growth had unexpected consequences for the corporate structure of the great companies. Managerial practices of questionable

CORPORATE

STRUCTURE

*

51

propriety developed because of the disparity between corporate size and compensation. Even stock ownership, the keystone of corporate worth, did not open the sluicegates of profitmaking. The growing size and wealth of the companies opened vistas of great financial remuneration; but the same process tended to put the corporate structure beyond purely entrepreneurial considerations. The resulting tensions and frustrations help to account for the special ardor with which the life insurance chieftains sought satisfaction in varied forms of corporate power.

V #

Growth and the Business Technique

Growth had no less distinctive consequences for the companies' business technique. The fundamental development in the change in corporate structure had been an unresolved — and heightening — tension between the companies' responsibilities as quasi-public institutions and their temptations as private corporations. In the area of insurance marketing, too, growth brought problems — and prospects — more than purely entrepreneurial in nature. One disturbing phenomenon was the stubborn association of growth with high, and rising, costs. True, "expensive" insurance fitted into the magnates' business ideology. Richard McCurdy drew a lesson for his board: "Gentlemen, Herter grows rich on the Fifth Avenue, and his widow has her box at the Opera. Tiffany . . . sells articles of the highest cost that can be made or imported, and builds a palace on Madison Avenue. 'Cheap John' and 'The Original Jacobs' sell cheap goods on the Bowery — and live and die in Hester Street." In 1898 he announced with pride that life insurance companies no longer were "the custodian of the savings of those of slender resources but thrifty habits"; rather, they had become "the bulwark and defense of large fortunes and large ventures." 1 Ideology and attitudes apart, giantism and corporate maturity raised the companies' expense ratio. One measurement of the expense rate of the ten largest life insurance firms set it at 11.8 percent of income in 1870, 14.8 percent in 1883, and 19.2 percent in 1903. By the early 1900's the Mutual was surpassing its loading (estimated expenses) with disturbing frequency. Industrial companies were particularly bedeviled by costs considerably higher than

G R O W T H

A N D

B U S I N E S S

T E C H N I Q U E

*

53

those of the ordinary life companies. The operating expenses of the Big Three in 1904 were 49 percent of the total paid to policyholders; for the Metropolitan the figure was 119 percent. Smaller companies generally subsisted on lower expense ratios. But even they felt the pressure of the operating standards set by the giants.2 Nor did the "expensive" insurance sought by the Big Three's leaders prove proportionately profitable. The great increase in number of policies at the turn of the century did not yield commensurate gains in the amount of insurance in force, or in premium income accruing to the companies (see Table 1). TABLE 1. The growth of the Big Three, 1899-1904 (percent)

Company Equitable New York Life Mutual Average of four other American companies

Number of policies

Insurance in force

Income

60.65 114.00 66.23

42.34 83.15 48.07

47.73 65.47 45.91

36.74

34.08

34.08

Source: Equitable, Supplemental Report in the Investigation of the Equitable. . . , March 15, 1906, pp. 59-60.

The great companies showed concern over costs as early as 1891, when the Mutual and the Equitable pledged themselves to cut expenses. The problem heightened in intensity during the 1890's. The panic of 1893 and the ensuing depression caused a decline in new business and a fall in security values, but no discernible cut in costs. McCurdy braced his board for a disappointing annual statement at the end of 1893, and thought it an appropriate time "to look more closely into general expenditures than we have been accustomed to in the past." But no improvement came; and in 1898 he ordered audits of Mutual departmental expenses and appointed a confidential committee of officers to examine company costs. Though the New York Life and the Equitable were not "models of economical management" the Mutual's expenses were "decidedly heavier," and McCurdy wanted to know why. (George W. Perkins' explanation was that "they liked to live pretty well down there.") 3 Still the problem resisted solution. In 1900 McCurdy chastized his son for the foreign department's high expense ratio; wanted ad-

54

*

THE LIFE INSURANCE

ENTERPRISE

vertising and luncheon costs cut; and importuned his subordinates to "begin the new Century by showing that the acquired experience and momentum of the last ten years has enabled us to reasonably increase our productiveness and to diminish the rate of expenses." By this time the New York Life's officers, too, thought it imperative that the expense ratio show a rapid and marked improvement. But, as the Armstrong investigation demonstrated, none of the great firms had come close to solving the cost problem by 1905.4 Explanations of this unsatisfactory experience varied, and in their diversity underlined the fact that the phenomenon was an integral part of rapid growth. Rising agency and managerial expenses (as one executive put it: "It costs more to live"); the decline in interest rates on investments; rising taxes; deferred dividend policyholders lapsing (canceling) their policies less frequently than expected; industrial policyholders lapsing more frequently than was desirable; expanding policy benefits — all of these were explanations of the stubbornly high cost, the disappointingly low dividend returns, of life insurance at the turn of the century. The costs of a burgeoning, sophisticated, bureaucratized enterprise — what Dryden called "the general toning up and elevating of the entire operation of the company's business" — canceled out the potential savings of greater size.® Competition, as well as growth and size, worked to increase the cost of the business: a state of affairs which Burton Hendrick oversanguinely thought unique to life insurance. James Alexander blamed heavy — and expensive — policy cancellations on "the competition in the business"; ambitious agents enticed (or, as the trade put it, 'twisted') policyholders to drop one company's insurance and take up the supposedly more attractive offerings of another. An executive of a small company observed that "competition has brought out many liberal features that ought not to be put in a contract"; and those policy improvements were a cause, or at least a justification, of continually high premium rates.6 Just as the problems of management and the corporate structure stemmed from growth alone and not from the nature of ownership, so was high cost a product of the expansion of business itself. Thus, whether one proceeds from an analysis of the companies as competing entrepreneurial units, or from a view of them as bureaucratized corporate institutions, unsatisfying and stubborn cost ratios were the unavoidable and logical development. The failure of the managers to cope with the cost problem suggested

GROWTH AND BUSINESS TECHNIQUE

*

55

that the companies' business technique would not easily come under strong executive control. As the firms developed into an institutionalized society of corporations, their business techniques became subject to considerations more complex than simple and direct profitmaking. And complexity, no matter how much the product of growth and wealth, put restraints on the exercise of corporate power. 2 Of most direct concern to policyholders were premium rates. These rose very slightly between 1860 and 1910.7 But in view of the steady climb in life expectancy, and the decline in policy dividends, price stability reflected the rising operating costs of a highly competitive, expensive, institutionalized business. Premium rates early became rigid under this stabilizing influence. Mutual president Frederick Winston's attempt in the 1870's to meet the Equitable's competition with a substantial premium reduction was blocked by widespread and concerted opposition from the rest of the industry. In 1896 another Mutual president, Richard McCurdy, interested himself in premiums — but this time in the form of a call for a Big Three meeting to discuss raising the rates on policy classes that he considered insufficiently remunerative.8 Formalized and noncompetitive ratemaking also involved certain responsibilities. Rebating — the return of part or all of a premium to a policyholder as an inducement to the purchase of the policy — was a popular competitive device. However, its explicit conflict with stabilized premium rates made it indefensible in the eyes of the public, the legislatures, and eventually the companies themselves. The industrial companies' attempts to establish different premium rates for white and Negro policyholders, no matter how justified by actuarial computations, so clashed with accepted notions of the role of life insurance that several states forbade the distinction.9 During the Civil War the then less trammeled industry raised its rates on soldier policyholders. The Mutual's reaction to the Spanish-American War was to require permits and extra premiums from policyholders joining the military. McCurdy, with his customary brusqueness, had said in 1895: "Whatever sympathetic interest we may feel for the defenders of our country in time of war, as a business proposition they are not worth any special effort to secure their patronage." The New York Life, the Prudential, and the Metropolitan, however, set no additional premium requirements for members of the armed forces. Several

56

*

THE LIFE INSURANCE

ENTERPRISE

considerations may have shaped this decision: the ratemaking rigidity of the time, the lack of actuarial danger, public relations advantages. George W. Perkins gleefully compared the New York Life's approach to the "stupid, laborious" position of the Mutual. The institutionalization of premium rates meant not so much the end of decisionmaking in that area as the injection of factors more subtle and less controllable than direct and immediate profit and loss.10 3 Nothing was more fundamental to the business growth of the Big Three, or more evocative of the values that governed them, than the deferred dividend policy. This contract required the policyholder to forego dividends for five, ten, or twenty years. In return he had the prospect of benefiting from the more flexible investment powers thus afforded the company, and from the lapses and policy surrenders of fellow policyholders unable to maintain premium payments. The policies resembled Lorenzo Tonti's seventeenth century annuity schemes for Louis XIV, which gave them the popular name of tontines. In the age of Social Darwinism, the tontine policy rewarded in the most direct manner the fittest who survived. As New York Life's President Beers put it: "That is the law of every business enterprise — free choice at the outset; risk in any course and the greater prospective gain attended by the greater risk . . . It is neither new nor wrong to link duty to others with profits to one's self." At a time when the heady promises of speculation intermingled with the sober realities of rapid social and geographical displacement, tontines satisfied both the desire for gain and the need for security. When the traditional entrepreneurial concern with expenses was giving way to expansion at any cost, an ideal "absence of accountability" inhered in the deferred dividend policy, for the effect of "growth at undue cost . . . is not felt by the policyholder until . . . it is too late for his unavailing protest." 11 The policy fit the business views of magnates who, with all the hardheaded attributes of Rockefellers and Carnegies, dealt in so intangible a product as life insurance. John McCall observed that "the average man will not insure through sentiment"; his actuary with greater pungency spoke of the tontine policy's appeal to "the commercial man's natural selfishness." To heighten this quality, the companies gave their policies labels evocative of sound yet profitable investment: "bonds," "gold bonds," "consols." The Commercial and Financial Chronicle began in

GROWTH AND BUSINESS TECHNIQUE

*

57

the 1890's to treat tontines as investments more than as insurance, for it considered that "[i]nsuring life has become business, and is put on the 'business' basis at once and primarily." "What," it asked, "is there . . . in the line of pure investment of the very highest class, which can be bought to run twenty years and do as well?" The answer, it would turn out, was: almost anything.12 It was appropriate that Henry Hyde, the most daring and inventive insurance man of his time, should be the first to fix successfully upon this revolutionary insurance device. Trammeled by a charter requirement for dividend payments at least once every five years, Hyde obtained from the New York legislature a misleadingly titled Law Authorizing the Payment of Annual Dividends. This act provided that any life insurance company might pay its dividends annually "or at longer intervals," and thereby gave Hyde the legal permission he needed for deferred dividend policies.13 Once the Equitable's rapid growth proved the efficacy of the tontine policy, the other companies fell into line. The New York Life adopted it in 1871; the Mutual, in 1885. By 1888, only 0.5 percent of the Mutual's new business was on an annual dividend basis. Indeed, annual dividend policy solicitation was positively discouraged. Actuary Rufus Weeks of the New York Life bluntly declared: "We do not want the annual dividend business." The Mutual offered its agents a higher commission rate for deferred dividend policies. Its actuary argued that without the differentiation its "indoctrinated" solicitors would be "confused" and hence less effective. The Prudential in 1886 and the John Hancock in 1896 emphasized the sale of tontines in their ordinary life departments. Only the Metropolitan, whose vice-president, Haley Fiske, looked upon deferred dividend policies with distrust and distaste, refused to succumb to the prevailing trend. 14 Deferred dividends became a special target of insurance men opposed to the corporate values of the great companies. Elizur Wright, deeply committed to the eleemosynary role of life insurance, roundly denounced tontine policies as "life insurance cannibalism. It is as if a temperance society should endeavor to promote its cause by establishing a liquor saloon under its lecture-room, or a church should support its minister by a lottery." Tontine investigations in New York (1877) and Ohio (1886) suggest that Wright's unease was widely shared. The leading managerial opponents of deferred dividend policies were Colonel Jacob L. Greene of the Connecticut Mutual and Amzi Dodd of the

58

*

THE LIFE I N S U R A N C E

ENTERPRISE

Mutual Benefit of New Jersey. Both business traditionalists, they condemned tontines as unsound and dishonest. 15 But these were ineffective voices, overwhelmed by the appropriateness of deferred dividend policies to their market and their time. Wright's criticisms were muted by an Equitable retainer until his death in 1885, and Greene's indignation could not easily be separated from the fact that his company, second in size in the 1870's, slipped badly until in 1904 it wrote only 1 percent of the business of the Big Three. 16 Yet the tontine device was a prime source of the troubles that led to the Armstrong investigation of 1905. The inaccuracy of the companies' glowing predictions of ultimate returns caused considerable policyholder wrath by the beginning of the new century. Even earlier, the high lapse rate forced the initiation of semitontine policies, which preserved some of the contract's equity for the defaulting policyholder. Strikingly, industrial insurance policies fell heir to the same ills that afflicted the deferred dividend system. Plagued by high costs and a heavy lapse rate, the Metropolitan and the Prudential tried to make their policies more attractive by paying dividends — just as the straight life firms turned to semitontines. Both the high costs and the heavy lapse rate of pre-1905 tontine and industrial insurance seemed at the time to be inevitable accompaniments of large-scale insurance marketing. After 1905, legislation ended deferred dividend policies and the need to assuage public opinion forced the reduction of industrial operating expenses. But neither development injured the business; quite the contrary. In retrospect, then, the high costs and deferred dividend policies of the great companies were an organic part of the business only because they accorded with the prevailing managerial ideology. 4 The pressures of competition that made the deferred dividend policy the standard by 1900 also led the companies to vie with each other in liberalizing policy terms. If Hyde's tontines marked the apogee of bold and dynamic insurance marketing, rapid and often imaginative policy liberalization toward the end of the nineteenth century suggested a more mature and sophisticated business technique. In line with their deification of growth and size, the companies allowed ever larger individual insurances. The New York Life's trustees noted in 1883 that because of the decline in the general interest rate

GROWTH

AND BUSINESS TECHNIQUE

*

59

capitalists were turning to "Life Insurance as an investment," and approved of an increase in the maximum insurance on a single life from $50,000 to $75,000. At the end of 1884 the ceiling reached $100,000. The Mutual in particular relished large insurance holdings. In 1891 Theodore A. Havemeyer and four members of his family had five $100,000 policies, the industry's largest familial holding. By 1905 Rodman Wanamaker alone held $2,000,000 worth of insurance. The Mutual in fact reinsured all but a quarter million of this insurance with other firms, but the total had an obvious public relations function, and in McCurdy's company contributed to a cherished image of corporate grandeur.17 The New York Life under Perkins' aegis boldly experimented with new policy techniques. During the 1890's it pioneered in extending its coverage, at heightened rates, to substandard risks, and even attempted group coverage plans. From the 1880's on, various employers and industries discussed or implemented insurance plans to benefit struck firms; and the Mutual became involved in this extension of the underwriting principle. In 1896 it issued endowment policies on selected employees in a firm, with compensation adjusted to length of continuous employment. "It may be that we have accidentally hit upon an effective means of counteracting the machinations of the Trade Unions in promoting strikes," McCurdy wrote hopefully. But he shied from insuring large groups of workmen on the ground that the industrial companies were more experienced in that line. In any event, the opposition of the Commercial and Financial Chronicle to an antistrike insurance plan suggested that such an application of insurance seemed improper to many even at the turn of the century.18 Of more significance than these experiments was the liberalization of the terms of ordinary and industrial policies. Beginning in the 1870's, and furthered by an intricate complex of competitive emulation, legal interpretation, and legislative requirement, policy liberalization reached its greatest intensity in the 1890's. By the early twentieth century, the benefits of the insurance contract extended to substandard risks and hazardous occupations; restrictions on travel and exemptions based on the manner of death were dropped; nonforfeiture and incontestability features had been developed and expanded; a liberal interpretation of application statements was becoming common; and greater surrender values and borrowing equity added to the policy's financial worth.19 The growth of policy loan provisions illustrated the strong impetus

60

*

THE LIFE

INSURANCE

ENTERPRISE

that competition gave to policy liberalization, and the way in which the values of the managers determined their business techniques. The New York Life began to grant policy loans in 1892, after the revised New York insurance law permitted it. As the device proved popular, Hyde set Tarbell to examine the New York Life's lending machinery, and told his company's agents that the Equitable was willing to lend on its policies. Although McCurdy informed Hyde that he could not follow suit "without stultifying myself," the Mutual temporarily joined its competitors. The popularity of the loan provision, like deferred dividend policies, reflected the investment orientation of policyholders and of company marketing practices. When the ordinary life business turned to the less affluent in the 1920's, policy loans sharply decreased.20 5 Even the seemingly abstract and objective area of actuarial computation reflected prevailing corporate values. No phase of the business was more enmeshed in arcane technicalities than the reserve. Level (equal-sized) premiums made necessary an invested reserve fund to compensate for the steady decline in the insured's life expectancy. Several variables entered into the requisite calculations: the proportion of the premium to be charged against the reserve; the assumed mortality rate; and the interest that the invested reserve might be expected to earn. The first variable was controlled in 1858, when Elizur Wright induced Massachusetts to require that reserve calculations be based upon a net premium (premium less loading) rather than upon a gross premium. The immediate effect was to raise the amount needed for the reserve, a fact of significance to borderline companies. The question of the assumed mortality rate also seemed to be settled early. Actuary Sheppard Homans, with Wright's approbation, had the Mutual use the American Experience mortality table in the 1860's, and all American companies followed suit. This, too, increased the reserve requirement, for the new table listed longer life expectancies than did the English tables previously used. When adopting the American Experience table the Mutual assumed that reserves thus accumulated would earn 4 percent in interest, a long-term factor of some consequence in determining the size of the reserve itself. The New York law allowed up to 4.5 percent in reserve valuation. The large companies that used the 4 percent rate thus demonstrated their financial soundness, since the lower the earning rate

GROWTH AND BUSINESS

TECHNIQUE

*

61

the larger the reserve would have to be. When in 1888 New York adopted the companies' 4 percent rate as the legal maximum many firms had to lower their reserve valuations, and thus increase their reserves by a total of thirty million dollars.21 Reserve size, and the valuation rates which helped to determine that size, could be of concern to companies teetering between solvency and bankruptcy or anxious to bend their resources to business expansion. For example, the Metropolitan in the early 1880's found Massachusetts' strict reserve valuation an onerous requirement. But the reserve had no such import for large and financially secure firms. Rather, their major interest in the reserve rested on subtler considerations: whether the valuation system would inspire or detract from public confidence; whether the valuation rate corresponded in a satisfactory way with investment earning rates. Now a larger reserve meant not a greater guarantee of corporate solvency, but a greater accumulation of capital available for investment by company managements. New York Life cashier Theodore M. Banta, attacking his company's extravagant management in the late 1880's, criticized the firm's reserve for being wastefully large, not for being dangerously small.22 These considerations came into play when, in 1893, a New York law allowed the use of varying tables of mortality, not just the American table, in computing reserve rates. The purpose of the law clearly was to allow companies to substitute mortality tables that would allow a lesser reserve. It was supported by the Mutual's McCurdy, who retained an old-fashioned distaste for large reserves and complained about "the blind cult of a net reserve and a single standard." But the Missouri insurance department responded to the law by demanding detailed lists from the New York companies of all policies in force, with a view to making its own valuation of the appropriate reserves for these firms — and charging the companies heavily for the service. Every other state, presumably, could undertake the same expensive process. The New York Life led the city's major firms in filing notice of their intention to retain the former valuation standard, and induced the Missouri commissioner to withdraw his revaluation threat. 23 Indeed, the companies came to welcome the opportunity to emphasize their fiscal conservatism and at the same time to increase the size of their invested reserves. As general interest rates declined, they pressed for a lowered valuation. The Prudential dropped to a 3.5 percent rate in 1897, and to 3 percent in 1899. The Equitable, too, went to 3 per-

62

*

THE LIFE INSURANCE

ENTERPRISE

cent, and after New York State scaled down its maximum valuation rate to 3.5 percent, the Mutual in 1907 also went to the 3 percent level. Valuation levels became entangled in competition as well; an intercompany agreement to keep the rate at 3.5 percent broke down in 1897 when Hyde brought out a policy based on a 3 percent reserve valuation. McCurdy, who considered a return to the 4 percent rate logical, decided that the views of the other companies and "the possible course of legislation" made the 3.5 percent standard the most viable one.24 Yet the Mutual's own actuary was confident in 1905 that the companies would continue to earn 4 percent on their investments, perhaps a little more. It seems clear that the function of the reserve, and company policy toward it, had moved far from their original purpose of guaranteeing long-term insurance policy commitments. For example, a valuation rate lower than actual investment earnings would help to cover unconscionable expenses. It was suggestive that by 1905 John McCall of the New York Life publicly stated his belief that the policyholder, who could break his insurance contract while the company could not, was not entitled to the full face value of his reserve. And the actuary of the Mutual, which persisted in regarding the reserve as a troublesome imposition, thought it desirable to allow the companies to use most of a policy's first premium for the expenses of obtaining the business. In practice, he declared, the companies dipped into their surpluses to make up the substantial first-year reserve that the law demanded. 25 Thus did the reserve, onetime bulwark of the insurance contract, become a factor in the business technique of companies for whom it was a nuisance or a convenience, but not a burden. 6 Since life insurance companies generally received more money in premiums and investments than they disbursed in policy payments and expenses, a surplus usually existed. The ideology of insurance equity and the dictates of competition committed most of the surplus to the policyholders. Even the stock industrial companies, which had no legal obligation to disburse the surplus to their insured, found it necessary to do so. Of course, in law and by charter the mutual companies' surplus belonged to their policyholders. Deferred dividend policies eliminated the obligation for rapid distribution of the surplus. The undistributed surplus, particularly of the Equitable, grew larger and larger (see Table 2), The surplus became an

GROWTH

AND

BUSINESS

TECHNIQUE

*

63

TABLE 2. Undistributed deferred dividend surpluses of the Big Three, 1880-1904 (millions of dollars)

Year

Equitable

Mutual

New York Life

1880 1885 1890 1895 1900 1904

6.5 12.9 21 5 39.4 65.9 80.5

6.3 6.9 9.9 26.9 56.6 74.4

6.7 9.8 15.1 24.0 46.0 47.5

Source: Spectator Company, Insurance Year Book, years cited. expression of the companies' size and soundness; a source of fluid capital for investment; an inducement to managerial extravagance and irresponsibility. The reserve satisfied the legal definition of insurance-company solvency, leaving the surpluses untrammeled as a source of and an incentive to wasteful managerial practices. Yet the great sales of deferred dividend policies in the late nineteenth century depended in part on grandiose promises of accumulated dividend returns upon maturity. By 1900 large numbers of those policies were maturing, and it had become necessary to weigh the effect upon current business of "awfully disappointing" dividends on the older contracts. 26 As a result, the companies' actuarial computations became something more than statistical exercises. Equitable and Mutual loading figures included a substantial factor based on the judgment or inclinations of the management. The New York Life's trustees set up a special fund at the beginning of 1896 so that despite poor business conditions the company's expense ratio (from which loading, surplus, and dividend calculations were made) would be at least as favorable as in the preceding year. In 1900 they established an Annual Dividend Equalization Fund, based on undivided surplus and designed to secure a steady return for annual dividend policies. 27 Guesswork and subjective computations were particularly endemic in the preparation of deferred dividends. The panoply of mathematical complexity was impressive enough. Richard McCurdy frankly said of his company's dividend appraisal method: "It is quite complicated, and I cannot say that I understand it very well myself." But Mutual actuary Emery McClintock clarified the process. Generally he tried to keep dividend fluctuations at a minimum, since then it was "most easily ex-

64

*

THE LIFE INSURANCE

ENTERPRISE

plainable to the public." When in 1903 the company's investments fell heavily in market value, he seized the opportunity to make a substantial cut in returns to annual dividend policyholders, even though "I don't think [the market fall] . . . made any difference in the figures at all." Nor did the market's recovery in 1904 lead to a dividend increase; it only "influenced me not to make a further reduction." McClintock's technique in determining the 1904 dividend rate was to modify the previous year's return "in accordance with what appeared to be the way business was running." Especially figurative were his general criteria for annual policy dividends: "First, whether they progress with a reasonable closeness to the year before, so as not to produce violent jerks in the figures up or down, and secondly . . . the moral liability which [the company] . . . ought to hold for the deferred dividend." On grounds of marketing policy it was advisable to favor deferred over annual dividends; Henry Hyde asked the Equitable's actuary to raise out of hand the figures that determined deferred dividend rates.28 7 The growth of the insurance companies into great corporate institutions thus infused the most technical aspects of their business with complex and far-ranging policy considerations. It had even more dramatic effects on the key components of the marketing process: advertising, agency structure, and business competition. A sense of publicity and of the power of advertising inhered in the business from its beginning. But the most active function of public relations in the years following the Civil War was not so much the development of policyholder acceptance and loyalty as effective intercompany warfare. During the 1870's, particularly, the great struggle between the Equitable and the Mutual often took the form of claims and promises unfavorable to the other company, or of fulminations by paid newspaper and insurance journal hacks.29 The existence of an active insurance press reflected the highly verbal nature of the business, and the maturity of the enterprise. But the often scurrilous nature of insurance journalism betrayed a general inclination to use public relations as a weapon rather than as a tool. The Big Three, at much expense, set insurance periodicals against Jacob Greene and the Connecticut Mutual, the great opponent of deferred dividend policies. The Mutual had an arrangement with the Insurance News, which McCurdy planned to supply with lead articles "in the right direction." He

GROWTH AND BUSINESS

TECHNIQUE

*

65

thought it important that the Mutual's relationship with the journal be a muted one; otherwise, criticisms of other companies appearing there could too easily be blamed on his firm. When the Equitable's James Alexander complained about an item in the Insurance Record, another journal temporarily in the Mutual orbit, McCurdy denied controlling the editor, but thought he could make him "understand" that the piece was inaccurate. Each of the Big Three became the object of the special — and paid-for — animosity of an insurance periodical: the Mutual, of the Guardian·, the Equitable, of the Chicago Investigator, the New York Life, of the Record.30 Henry Hyde fully shared McCurdy's willingness to use public relations for pejorative purposes. The Equitable's house organ tangled fiercely with its opposite number in the Mutual, and Hyde set actuary Sheppard Homans to work on charts comparing the two companies' growth to the Mutual's disadvantage. On the eve of the appearance of a new Mutual premium rate book, an accepted means of demonstrating the inferior quality of competitors' policies, Hyde readied his company to "attack the Mutual to the same extent as they attack us in their book — in case it does attack us." 31 Companies schooled in this warlike approach to public relations were inclined to use sub rosa methods in all of their advertising efforts. They often gave their sales messages the guise of news rather than advertising matter. During the late 1880's Hyde engaged numerous journals to print favorable material in their news columns, and found the results satisfactory. In 1888 he paid $3000 to Charles Dana's Sun·, in return, the Sun agreed to print "any general articles about the Equitable or about life insurance, if they are not too partisan." Impatiently he prodded James Alexander to feed copy to the compliant newspaper: "It is a pity to pay them the money without getting some benefit out of it." The Mutual, too, actively placed publicity material masquerading as news, and rewarded friendly journals with paid advertising. One of its publicity specialists recommended applying the technique to religious papers: "they put anything in there." At one point a dummy news agency called the Mutual Press Association fed paid-for fillers to a national list of publications. The going rate was suggested by the sobriquet of one of the company's publicists : "Dollar-a-Line" Smith. 32 But there were signs by the turn of the century that public belaboring of one's competitors, and heavy dependence on subventions to the insurance press, was passing out of style. For one thing, the bought would

66

*

THE LIFE INSURANCE

ENTERPRISE

not stay bought. Hyde complained in 1888 of the ingratitude of New York insurance editors who seemed to be in combination against the Equitable, and McCurdy noted that the New York Life seemed to be able to get better treatment at less expense from the insurance press than did either of its competitors. The cost, too, could become oppressive: a New York Life lobbyist reminisced in 1910 about "how many insurance journals there were which the president of any one of the big three companies had to pay blackmail to every month, or else have himself caricatured and ridiculed unmercifully." The imaginative George W. Perkins first broke from accepted publicity techniques. In 1900 he told insurance journal editors that the New York Life no longer would run formal ads, but would maintain its subsidies if in each issue an article on the company appeared. "In effect," he hoped, "this will mean that we will pretty nearly control every insurance journal . . . so that it cannot say anything against us." In a year, once the journals were committed to constant endorsements of the New York Life, he planned to halve their allowances. This process could, of course, be copied by the other firms, and thus vitiate the force of bought insurance journalism.33 Perhaps most decisively, these older public relations methods came to seem out of place in a sophisticated corporate group. McCurdy grandly rebuked his subsidized English journal's attacks on John McCall of the New York Life: "Badly as I think of the means which Mr. McCall has seen fit to adopt in making wholly unprovoked warfare upon my Company . . . [c]haracter is something and will prevail in the end." The early years of the twentieth century saw agreements among the Big Three not to attack each other in advertisements and to restrict invidiously comparative literature put out by agents.34 As the leaders' blood lust lessened with the emergence of a sophisticated society of companies, new techniques of public relations came into favor. By 1904 the Mutual's advertising budget was $330,000; it devoted $42,000 to direct appeals for policyholders in magazine ads, and wrote $13,000,000 worth of insurance through them. The Metropolitan showed some reluctance to plunge heavily into advertising, Hegeman discounting it as "an expensive luxury." But the Prudential embarked on broad-scale publicity campaigns in the mid-1890's, and was probably the first insurance company to use a full-time advertising agency, J. Walter Thompson. An agency man devised the most successful of all insurance symbols and slogans: "The Prudential Has the Strength of Gibraltar." The Equitable used similar motifs in its advertising: a tower-

GROWTH AND BUSINESS TECHNIQUE

*

67

ing mountain to suggest the company's huge surplus; beckoning lighthouses and sturdy bridges to symbolize the security that life insurance afforded. The distance between this institutionalized, socially conscious advertising technique and the emotional, competitive public relations of earlier decades was another measure of the degree of maturity attained by the great life insurance companies at the century's turn. 35 8 Large, aggressive selling forces were critically important in the expansion of the life insurance business. This marketing element dramatically reflected the corporate institutionalization that came with growth. The dominant selling structure in the late nineteenth century was the general agency system. Companies in the early stages of national expansion found it useful to turn over their insurance solicitation to regional agents. These general agents hired corps of insurance solicitors, paid their own operating expenses (often out of substantial advances from the mother company), and sent a due proportion of their receipts to the home office. Agent compensation rested almost wholly on commissions. It was significant that by 1905 one of the few defenders of the general agency system was the Equitable's Gage Tarbell. Unlike most of his peers, he interested himself exclusively in life insurance marketing. In his agency days in Chicago, he had been known as the "prince of rebaters." For Tarbell the advantages of commissioned general agents and subagents over centrally controlled, salaried solicitors lay in the commission system's incentives to large producers. The system was "more economical and more American." But so simplistic an insistence on entrepreneurial essentials had become old-fashioned by the turn of the century. For one thing, the expenses and profits of the larger agencies were embarrassingly high to cost-conscious companies, the justification that "large rewards" were due "large achievements" notwithstanding. In addition, size alone made the system cumbersome: the Big Three had between ten and fifteen thousand agents apiece by 1905.36 Inevitably the decentralized general agencies clashed with the consolidating tendencies of the booming companies. For a society of mature, institutionalized corporations, the domains of the general agents became as much an irritant as the fiefs of great lords had been to rising national monarchs. The first sign of this clash of interests was the introduction of special

68

*

THE LIFE INSURANCE

ENTERPRISE

agents directly responsible to the home office. Free-lance supersalesmen who specialized in securing large policies roamed from city to city in search of men of affairs who could be induced to take substantial amounts of insurance. McCurdy got authority from his board in 1888 to send out such agents, and created a special department which dispatched flying squads of solicitors — Executive Specials — to sign up large policyholders. The most spectacular of these special agents were the Dinkelspiel brothers. Sam worked for the New York Life, William for the Equitable. A third brother, the New York Life's general agent in New Orleans and less avaricious than the others, was known as the "good Dinkelspiel." In every large city the brothers were notorious for their flamboyant selling techniques. To wealthy customers they airily promised rebates, company investments in local hotels and office buildings, directorships in their insurance firms, and, in Boston, commissions on all other insurance sold in the city. Far from discouraging such recklessness, the companies advanced huge sums of money to the brothers and accommodated them in other ways: when they lost $50,000 in one day at the Saratoga race track, the New York Life made good $30,000; the Equitable, the remainder. Sam Dinkelspiel left the New York Life in 1887 owing the company $348,000. 37 More important than the spectacular but essentially anarchic and transitory special agent was the development of branch office systems to replace general agencies. Headed by salaried superintendents directly responsible to the home office, the branch offices reflected the tendency toward centralized, rationalized organization. McCurdy's declaration that "there is no place for 'general utility' on our stage. The day of the . . . amateur is gone" expressed the soliciting viewpoint which eventually spelled the end of the general agency system. George W. Perkins, who pioneered in installing a branch office system in the New York Life, was aware of its psychological impact on the fabric of agency loyalty and reward. He devised an accompanying agents' association, Nylic, which through badges and awards, picnics and conventions, songs and contests, and profitable trust funds, riveted solicitor loyalty to the company itself. It was much as if a rising king attempted to preserve the fealty of his nobility through the creation of a monarchical order. By 1905, the New York Life had 215 domestic and forty foreign agency directors, all salaried, all Nylic men, all presumably loyal to the home office.38 The Mutual moved more slowly than the New York Life from general

GROWTH

AND

BUSINESS

TECHNIQUE

*

69

to branch agencies. McCurdy found it a difficult, twenty-year job to uproot the established general agencies. He was restrained, too, by the fact that his son-in-law was a partner in the C. H. Raymond Agency, which had the lion's share of the rich New York City market. But by 1905 the company's changeover to centrally controlled branch agencies was close to completion. Only Tarbell's Equitable continued to adhere to the old way. Although the industrial companies always exercised direct control over their agency forces, the growing size and complexity of their operation required organized morale-building. The Prudential, with over 3200 agents in 1890 (it would have more than 10,500 by 1905) established an Old Guard association of long-term agents which played much the same role as Perkins' later Nylic. The evolution of the agency structure was yet another reflection of the change wrought by growth. Although the comparative efficiency of the general agency and branch office systems was unresolved (at least for the Equitable) for decades to come, the attraction of a centralized organization was powerful indeed. Even the Equitable, which resisted the trend, strove for a more professional force by beginning, at the turn of the century, a summer training school for college-educated prospective agents.39 9 The institutionalization of the society of companies came up against the very heart of the insurance business technique when it modified traditional patterns of intercompany competition. Surely competition was as strong in life insurance as in any other American enterprise in the late nineteenth century. The "Thirty Years War" between the Equitable and the Mutual was a classic case of intercompany battle. Nor did the onrushing quest for size toward the end of the century suggest any diminution of conflict. Vigorous competition made for spectacular marketing methods. The New York Life moved to the top of the industry during the 1890's with a panoply of selling drives. Agents were incited to new heights of sales volume to celebrate such events as John McCall's return from a European trip in the summer of 1897, or, in 1902, his tenth anniversary as president of the New York Life. Imaginative as George W. Perkins was in his business methods, he was of an old tradition in his fierce commitment to his company's ultimate supremacy. In this he was much like his political

70

*

THE LIFE INSURANCE

ENTERPRISE

friends Albert Beveridge and Theodore Roosevelt, who never let their visions of sophisticated imperialism and nationalism interfere with a staunch, self-seeking political partisanship. Beveridge feelingly congratulated Perkins on a New York Life annual report which trumpeted the company's successes over its peers: "I think it very appropriate that you bind your reports in alligator. I understand that that animal devours everything in sight." The mutual dislike of Hyde and McCurdy, and the vigor infused into the New York Life by Beers, McCall, and Perkins, made the last decade of the nineteenth century a time of frenetic competition among the Big Three. Perkins reported with no visible reluctance in 1890 that competition in the West "is certainly going to be extremely bitter." Two years later McCurdy observed that "at no time within my recollection have I found the indications of relentless struggle for supremacy clearer than I now find them." Henry Hyde piously complained that "the unwise competition that exists on the part of the Mutual and the N.Y. Life make the business more difficult than ever to conduct — that is, if you wish to adhere to strict business principles." But he easily surmounted his scruples, assigning an Equitable man to go through the Mutual's annual reports for evidence on how that firm "oppressed the South" during the Civil War, and aggressively declaring: "I do not think any existing agreements with the New York Life, are good for anything." James Hazen Hyde's eccentricities seemed fair game to the New York Life's executives, and they made plans to distribute a photograph of the younger Hyde in foppish attire.40 Much bad blood stemmed from agent-stealing. "Shall the auction go on or not?" McCurdy dramatically asked Hyde over one such incident in 1893. Clearly it would, for soon after the Mutual head hoped that his Chicago general agent had "scanned the Equitable list of representatives with a view to employing those who prefer to come with us." In 1900 the Equitable substantially reduced its agents' commission rates, and the New York Life swung into action. Abruptly terminating an 1894 agreement against hiring another firm's agents, it tried to entice to its employment as many Equitable agents as possible. But Gage Tarbell was not one for passive acceptance of such tactics. Confidentially of a Sunday, he met with Robert J. Mix, the New York Life's general agent for the Manhattan department, and with the inducement of a $250,000 to $300,000 advance won him and all but 3 of his 170 agents

GROWTH

AND BUSINESS TECHNIQUE

*

71

to the Equitable. "It was a good job, and I thought it would not do any harm to do it on a good day," Tarbell complacently remarked. 41 As the Prudential and the Metropolitan rose to dominate the industrial field, competition burgeoned between the two firms. Overzealous industrial agents attacked each other's companies as early as 1879, with Hegeman philosophically observing to Dryden that "now and then a little elbow-jostling will be inevitable." In this friendly spirit, the firms signed an agreement not to hire agents that the other had fired. But Knapp of the Metropolitan soon complained that the Prudential had violated the pact. Dryden replied that the agreement applied only to men dishonorably discharged, and pugnaciously declared that "[w]e desire peace" but would fight if necessary. "Words! Words! Words! A mass of special pleading, contradiction, inconsistency and nonsense," was Hegeman's reaction, and the fight was on. Through the 1880's complaints of agent-stealing flew between the two companies. One Prudential agent thought that an article in a Camden paper accusing his company of refusing to pay on an insured child's death had been planted by the Metropolitan. Nor did the John Hancock escape unscathed: when a "break up" of its Philadelphia agents threatened, that city's Prudential agent eagerly told his home office: "I can see opportunities that . . . will never occur again." 42 The Big Three also turned on lesser companies in their competitive vigor. Assessment firms were a special target. Hyde had his consulting actuary, Sheppard Homans, prepare material illuminating the all-toopatent fallacies of assessment insurance, and put pressure on the New York legislatiure for action against that system. The increasingly numerous cooperative fraternal companies disturbed the Equitable head. He told vice-president James Alexander in 1887: "We must make a sharp attack upon co-operatives, as we are being troubled by them a good deal," and planned to work with the other two companies in the dissemination of circulars attacking fraternels. 43 The society of great companies concerned themselves with more direct competitive threats as well. When a promoter of direct-mail insurance attempted to place advertising in national magazines, he found these outlets blocked by a "combination" including the Equitable, Mutual, and Prudential. Hyde waged a long and ultimately successful war against the Connecticut Mutual during the late 1870's and early 1880's. By the turn of the century the Northwestern Mutual of Milwaukee, next to the Big Five in size, had become a special object of attack. "If you can get

72

*

THE LIFE INSURANCE

ENTERPRISE

up little slips against [the Northwestern] . . . do so, as they are pursuing a pretty tough course towards us," Hyde counseled Equitable attorney William Alexander. The New York Life, expanding into Minnesota in 1890, tried to capture a crack Northwestern Mutual agent there. Perkins was afraid that the Milwaukee firm had got wind of his company's operations, and that they would counter by selling insurance to Minnesotans "upon almost any terms at all." Such competition could be nothing more than a minor annoyance to the giant companies. But the John Hancock, junior member of the industrial Big Three and more of a size with the Northwestern Mutual and the Mutual Benefit of New Jersey, felt the competition of the lesser firms.44 10 The great companies thus preserved a striking competitive vigor as growth took them to new levels of corporate maturity and sophistication. But despite their staunch commitment to the ethos of competition, the virtues of cooperation were increasingly attractive. In the 1890's the belief grew that the intercompany struggle was demoralizing, wasteful, at odds with the major tendencies of the corporate structure and the business technique. Consequently, continuous efforts were made to impose order within the society of companies. Ephemeral declarations of peace and good feeling always had provided a muted counterpoint to the clash of the giants. As early as 1884 the three leading industrial companies entered into agreements on premium rates and business methods. Coincident with the last decade of the nineteenth century there appeared evidences of what the Weekly Underwriter optimistically called the "beginning of a new epoch in life insurance practice in the United States." In this spirit Hyde, who by the 1890's was extolling the virtues of quality over corporate size, grandly observed to McCurdy in 1892 that he was opposed to a "system of controversy which ought to be buried with rebates and bonuses and huge brokerages and extraordinary expenses." 45 The firms early agreed on the need to do something about rebating. From 1885 attempts were made to curtail the evil. Jacob Greene of the Connecticut Mutual, which was suffering badly from the energetic rebating of Big Three agents, took the leading role in the movement. Hyde felt obliged to go along with Greene (in a tone of injured concern he complained to the Connecticut Mutual head about the indifference of

GROWTH AND BUSINESS TECHNIQUE

*

73

McCurdy and Beers), but privately he was "confident it never can be carried out." Even pressure so indifferently applied was enough to extract an antirebate law from the New York legislature in 1888. Other states followed; Massachusetts with an especially severe statute. The New York Life in 1889 introduced a policy allowing the equivalent of a 50 percent rebate on the first premium. The Massachusetts insurance commissioner declared the policy illegal under the state's new law. The company angrily withdrew, but soon dropped the offending policy provision and returned to the state. In general, however, the legislative movement against rebating proved ineffectual. Hyde complained righteously that rebating was the major evil in the insurance business, and McCurdy showed no real willingness to abandon the practice.46 Rebating was only part of a complex of business problems including high costs, the need to keep agents in line, and the competitive interests of the several companies. One expression of the interplay between competition and cooperation was the attempt during the 1890's to put some limit on the amount of insurance that a company wrote yearly. The Mutual seized the initiative in this movement, clearly not because of a change of heart by the expansionist McCurdy but out of a desire to check the growth of oversuccessful competitors. The continued superiority of the Equitable led McCurdy in 1891 to propose a sales limit to Hyde. This, he argued publicly, could produce regulated competition which offered the only effective way of cutting the companies' heavy costs. Not surprisingly, Hyde showed no great enthusiasm for the scheme. Nor did Jacob Greene of the Connecticut Mutual, who objected to the limitation because of its threat to free enterprise, and because it so obviously was a device in the Mutual's war with the Equitable. After a special committee of the National Convention of Insurance Commissioners made limitation proposals, Hyde reluctantly supposed that a one-billion-dollar maximum was the least objectionable; he thought, nearsightedly, that no company would ever have more insurance in force. But he doubted if the courts would sustain such a law, and argued that a lapse rate equal to or surpassing new business was a natural limiting factor. When a limitation bill was introduced in the New York legislature, Hyde decided not to support it, and the measure got nowhere. In 1900 McCurdy tried again, this time with the rapidly rising New York Life as his target. McCall, who had approved of the previous, anti-

74

*

THE LIFE INSURANCE

ENTERPRISE

Equitable limitation attempt, felt obliged to support a Mutual-sponsored bill setting a maximum of one and a half billion dollars. But the ambitious Perkins quickly converted his chief to opposition and the measure was defeated.47 Nevertheless, it became increasingly clear that concerted action was necessary to do something about the anarchic competition which so obviously contributed to the high cost of life insurance. In 1891 Hyde fathered a conclave of insurance companies designed to stop the raiding of agents. In the following year the Equitable and the New York Life agreed more specifically to the same thing, and in 1893 Hyde, McCall, and McCurdy met to discuss the coming year's agent commission rates. By 1895 the New York Life could afford to take the lead in attempts at cooperation. Spurred by that company, the Big Three in October 1895 signed a formal antirebate agreement at a meeting chaired by Massachusetts insurance commissioner Horace Merrill, and appointed former Massachusetts governor William Russell the arbiter of the compact. Representatives of twenty-eight companies, without the by now disillusioned Jacob Greene, signed this Magna Charta of reputable business practices. The fine political hand of John McCall made this an impressive achievement. The participation of officials from Massachusetts, the state thought to be most rigorous in its regulation practices, gave the compact an air of solidity and worth. When ex-Governor Russell gave up his arbitership, former speaker of the house Thomas B. Reed was his replacement.48 But rebating quite evidently persisted in airy disregard of the compact. Perkins reported in 1896 that the Equitable and the Mutual offered discounts of up to 80 percent to secure new business, and in 1899 McCall found that rebating "is on by . . . agents everywhere." The Equitable pulled out of what it termed a useless agreement, and the Mutual's board seriously questioned the agreement's value. Attempts to control agent-stealing were just as frequent, and just as unavailing. The companies agreed that an agent could transfer from one firm to another only with his original employer's permission. Personnel officers had an informal arrangement whereby letters of recommendation from an agent's previous company were typed on a pink slip if he had been "honorably" discharged. Nevertheless, mass raids on agents continued into the early 1900's. Other agreements, too, seemed to be distinguished primarily by the ease with which they were broken. The Big Three combined to fix the

GROWTH

AND BUSINESS TECHNIQUE

*

75

reserve valuation rate at 3.5 percent, but Hyde soon put out a policy with a 3 percent valuation. He graphically portrayed the pressures for disunity: "One of the companies to this . . . agreement has . . . dissolved its relations to it; another . . . has come to a deadlock with its neighbor as to the understanding of a simple statement of facts . . . I have done everything in my power to reconcile matters, but cannot . . . consider the agreement other than at an end." Only limited arrangements, such as the simultaneous payment of dividends on industrial policies by the Metropolitan and the Prudential, or the Big Three's agreement to place the burden of the Spanish-American War policy stamp tax on their policyholders, stood up reasonably well.49 Yet even by 1896 McCurdy discerned a great change in the nature of the business: "Competition between leading companies is much modified and the former aggressive and propagandist methods, at least so far as my own Company is concerned, have practically fallen into disuse," to be replaced by the "strictly business presentation of life insurance as an investment." The growing commonality of interest among the great corporations, the growing discordance between untrammeled competition and the needs of a mature, institutionalized society of companies, forced constant, if unsuccessful, attempts at cooperation in every sphere. A display of managerial good fellowship was the most impressive evidence of the transformation. Some old antipathies continued — Hyde wrote of his "utter contempt" for McCurdy, and Perkins saw the Mutual president as a "cold-blooded villain, caring nothing on earth for anybody or any thing except himself and those connected with him." But the coming of John McCall to the New York Life began a new day of easier intercompany executive relations. The New York Life trustees, in choosing McCall as the company's president, spoke of his good relations with the other firms, and hoped that "he would be able to harmonize the animosities resulting from the intense business competition of recent years . . . and thereby effect a saving of many hundreds of thousands of dollars in their annual expenses." Even McCurdy welcomed McCall as bringing a new era of peace and goodwill to the life insurance business.50 McCurdy's delayed payments on a $15,000 personal loan from Hyde occasioned some strain in 1888, but such difficulties disappeared when loans between the chieftains came from company funds. Hegeman and McCall, who was a Metropolitan director, exchanged notes for $150,000 at the more than reasonable interest rate of 1.5 percent. As Hegeman ex-

76

*

THE LIFE INSURANCE

ENTERPRISE

plained it, "I consulted him as business men and professional men consult each other, frequently on matters of common interest . . . On the other side, I have perhaps acted in the same spirit towards him." And when Gage Tarbell took out a New York Life policy from his opposite number George Perkins, it was only common and reciprocal courtesy for Perkins to allow the Equitable official the agent's commission on the policy. Toward the turn of the century, gestures of respect and courtesy seemed to be increasing, as though the great corporations were settling down to peaceful coexistence. When Henry Hyde weakened and then died, McCurdy found it easier to be on good terms with the Equitable. In 1898 he politely complimented James Alexander on the Equitable's annual statement ("It is great in any sense. Worthy of the great men and the great abilities which have created such results.") and invited Alexander to examine the Mutual's display for the Paris Exhibition of 1900. He welcomed James Hazen Hyde at the beginning of that young man's ill-starred insurance career, and supported the junior Hyde in his 1904 attempt to gain appointment as ambassador to France. Hyde responded to these gestures, telling McCurdy with cloudy enthusiasm that the companies should use their "immense moral influence as well as material means" to further their own ends. McCurdy's relations with Hegeman of the Metropolitan were excellent, and in his new-found mellowness he stopped a proposed attack on the New York Life, declaring that the Mutual would not criticize other companies.51 The fullest expression of the amity that corporate institutionalization brought came in company alliances — and, some hoped, in the actual consolidation of the firms. Rumor had it that the New York Life was so close to the Metropolitan, and the Equitable to the Prudential, that the Mutual also "deems it necessary to have such a side partner" and planned to convert the Washington Life Insurance Company into an industrial insurance firm. The Mutual, through some of its affiliated banking organizations, apparently made efforts in the early 1900's to purchase James Hazen Hyde's controlling bloc of Equitable stock. The close identification of the Equitable and the Prudential was common knowledge; a false report of their amalgamation circulated in 1902. As James Hazen Hyde put it in 1902: "The Equitable and the Prudential in every way — in finance, in banking and in insurance — are on the most friendly terms possible." But these alliances had their limits. Perkins, McCurdy, and Alexan-

GROWTH

AND BUSINESS

TECHNIQUE

*

77

der met in Paris in 1901 to discuss the tripartite financing of an English insurance paper, and Perkins responded to McCurdy's hope for "better things in the future" by suggesting that the Big Three amalgamate into one giant insurance company. His competitors did not respond to his enthusiasm. "The Steel Trust and the Standard Oil have suggested it," reported Alexander, who sarcastically summarized Perkins' intentions: Amalgamate. Become the arbitrator of life assurance in the world. Be so large as to be able to cope with foreign governments. Cut down expenses to the quick. Make everything purely mutual, and be the exponent of real and justifiable socialism. Buy out . . . everybody's stock for some millions. Buy out all general agents commissions . . . Form an executive control . . . have the whole under immediate management of one competent man. Perkins would consent to be this man.52

As great as the pressure for cooperation was the difficulty in achieving it. For while the growth of the companies made the rationalization, even the elimination, of competition seem logical and desirable, the increase in corporate worth — in the stakes involved — made its attainment correspondingly difficult. Growth and the consequent development of a society of mature, sophisticated corporations raised new vistas of business efficiency and control. But high costs, hard-to-justify dividend computations, and fervid competition remained the unwanted accompaniments of growth and size. Well might the Mutual's actuary muse that "prosperity has many meanings." 83

Power is not a brick that can be lugged from place to place, but a process that vanishes when the supporting responses cease. Harold D. Lasswell, Power and Responsibility

Part Three *

The Venture Overseas

The aggressive ideology and the domestic business triumphs of the Big Three persuaded them to look overseas for new markets to conquer. In consequence, they built up by 1900 a foreign business venture of unparalleled magnitude. The sophisticated techniques which served them so well at home worked with equal effectiveness abroad. But the very dynamism of their venture evoked substantial counterforces. The American companies were successful enough to stir foreign firms and governments to vigorous restrictive action. Although the Big Three claimed to be the evangels of a benevolent, international commerce, they could not escape the stigma of their foreignness. Everywhere they were treated as threats to domestic enterprise and national sovereignty. An international insurance business was a logical extension of American marketing triumphs, but the power of the great companies ultimately proved unexportable.

VI % The Dynamics of Foreign Expansion

In 1900 a French magazine charged that the Belgian manager of the Mutual Life Insurance Company of New York planned to engage the Pope as a general agent for his firm. The Pontiff's district would, of course, be the world, and he would receive 38 percent commission on initial premium payments. 1 This flight of fancy was stirred by a business venture whose dramatic success and precipitous decline constituted a revealing chapter in the history of the great life insurance companies. American life insurance abroad involved companies other than the Big Three, and went back in time to the Civil War era. A scattering of lesser firms — the Germania of Madison, Wisconsin; the Union Mutual of Portland, Maine; the United States Life of New York; the New England Mutual; the Mutual Benefit — ventured into other countries at diverse times. But only the Germania developed a durable and substantial foreign market. The Equitable had rudimentary agencies in Europe and Asia from the early 1860's, and along with the New York Life did a serious business in the major European nations during the 1870's. The American life insurance venture overseas took on substantially greater importance between 1885 and 1905. The New York Life, the Equitable, and the Mutual dominated the field; the Prudential and the Metropolitan, apart from some activity in Canada, did not seek business beyond the United States. The foreign business of the Big Three became extensive enough to amount to a sizable portion of their total insurance in force. By 1900 the Equitable was active in almost a hundred nations

82

*

THE LIFE

INSURANCE

ENTERPRISE

and territories the world over; the New York Life, in almost fifty; the Mutual, in about twenty. The volume of the New York Life's Paris office alone equaled the company's entire business of a few years before, and surpassed all American life insurance firms except the other two giants. The Big Three had almost three quarters of a billion dollars' worth of insurance in force abroad — overwhelmingly in Europe — with a quarter of a million policyholders. The three companies' 1905 premium income of almost $50,000,000 was about one eighth of the total value of the United States' finished manufactured exports.2 (See Table 3.) This, then, was a uniquely dynamic American corporate venture overseas. It eloquently attested to the vigor of the special drives that animated the turn-of-the-century society of life insurance companies.

2 The American companies found in Europe a domestic life insurance business which, though substantial, did not match their own in size or marketing techniques. The business in Germany was "very primitive" when the Big Three entered, although several companies dated back to the 1830's and 1840's and had considerable sums of insurance in force by the end of the century. In England, the domestic business was sapped by "fraud, extravagance, dishonesty, bankruptcy, and amalgamation." Outworn tradition also weighed heavily; the venerable Equitable of London had no soliciting agents, and sold insurance only to those who sought it. French companies appealed effectively to lower income groups, but offered no equivalent to the American companies' deferred dividend policies. A European authority epitomized the clash set off by the arrival of the American firms: "From the beginning there was intense competition. It was as if two worlds had entered the lists . . . [The European companies] had been moving along the old outworn paths, tied up with red tape and bureaucratic methods. The superiority of the American methods of doing business and capacity of organization, backed up by unlimited resources, made the competition fearful. 3 In 1899 John McCall judged that of 190 companies in continental Europe, only one, the Gotha, approached the Big Three. Of 92 in Great Britain, the Prudential, an industrial firm, alone exceeded the American companies' volume totals. The Mutual's French business went from 5.2 percent of that country's total in 1893 to 12.2 percent in 1895. Only in Australia and Canada were domestic firms able to outdo the marketing challenge of the United States corporations — although the

1 1

CO t-* f—I CO m o t · « Ο Φ Ν Ν υ υ e CS 3

ri σ\" ri

wo CS

ON ON cs O\

\o 00

•S

co1

ι on co oo oo Η χ Ν

ή o\ ON r^ ON NO Cl 00 CO On_ © oo © ^r es" r t f - CS

NO NO co CS oo no r - no WO CS WO ^ v i oC o oo" m Ν « t í oo^ o^ σ^ h ^ V H

α tu

·—' ro τι* Γ--

I

Ù •a 3 C S

wo O σ\

*Τ ο on ce

TJ te e CS

u 3

υ o C ce

ce

co no on oo Π Η Ν Η OC t»" oo" TÍ r» on p- co ON_ oo_ r» v i ψ* v i o rt VO ri CS CS cs co

O ON WO »1 CO CN CS CS

Β

& ¿ ^ «a,

I

£ CO W"> V) M N m^ i n ^ on" >o" ι-Γ co o r^ vi vo p» wo tN oo" o i o r i

υ

BO c

o

S

JB Η

«

tú Λ

G

ce

CS -η wo On

VO o o OS ^r os >-H θ\

es o NICH

o o o ^ m

i-Η m Q ι T-H O '

O m vo >-H Tf

O n » es CS VO ci •«t r-t ^ f)

io O vi "J CS f i "S ω >Η Ρη Ο

«β Ή Ρ

υ CU

>o

00

M

so

0\

o

so

wS

O

O

Tf fN

r«i

Ν

OO tN

rt fN

o O

»-H

tN O

Cl

r-

so

O

fN

o

t-^

o

(s

o

o

o tN

O

d 3 0

ci

H fN

1 00 ~ d -o

O υ

M J

«

§

3 •S «

K) O

C3 O

0) •a 2 «

ω -tí ce M g o gì u ""1

—'

t¡ 43

S

Pi

3 •o d C * í f l o ^> ~ f f v b tí x tí •a .g 'S § ^ °t S Λ

o

o

O

O

S

U

ft

« . a " η o S d g· Ρ

ε ™ 2 j < ο J2 ^ n c->

Μ3 T t m t^ ^

tt ρ-. CN 00 T f

o\

^q 00

m

σ\ Η

ri

·